A more dynamic fiscal policy, key to overcome crises

It is a mistake to think that an increase in spending must coincide with an increase in tax revenues. In Latin America, production has contracted. The world is facing a context of great uncertainty.

A more dynamic fiscal policy, key to overcome crises
Making fiscal policy more dynamic is the key to emerging from crises. Photo by Towfiqu barbhuiya / Unsplash

For Mexico to maintain the pace of growth and development, a fiscal policy is required to counteract the context of uncertainty that is being experienced, especially this year, due to the unending pandemic and the war in Europe, said Armando Sánchez Vargas, director of the Institute of Economic Research (IIEc) of the UNAM.

At the inauguration of the fourth edition of the "Seminar on Countercyclical Fiscal Policy for Stable and Sustained Growth in Developing Countries: The Case of Latin America," he added that actions in fiscal matters have to do with the nation's progress and growth. During the event, the ideas that will be presented will be fundamental to begin to analyze and discuss the important issues for Mexico today.

The coordinator of this distance learning academic activity, Eufemia Basilio Morales, pointed out that in this edition the main topic is the role that must be played in the face of the crisis derived from COVID-19, which has a considerable impact, especially in Latin America.

"It is known that since 2020, with the arrival of the pandemic, the outlook has not been at all easy in economic matters worldwide and, specifically in Latin America where production has contracted, most of these countries have been paralyzed," commented the researcher.

At this moment, several countries are experiencing the beginning of a crisis whose consequences cannot yet be quantified; while others are facing this situation; it is said that the critical blow will be more serious than the 1929 recession at a global level.

It is important to review the great challenges that this imposes on governments worldwide. In the particular case of this region, it is important to establish specific macroeconomic strategies and policies aimed at resuming economic growth and generating employment, in addition to reactivating economic activity in the medium term and alleviating the difficulties in which they are immersed.

It is necessary to review the active role of the State as the main actor in the economy, and fiscal policy as a powerful tool to achieve the goals of growth because if we continue under the orthodox premises that have prevailed in recent decades of the free market, the crisis will deepen.

While giving the master conference "Fiscal policy in the dilemma of growth, distribution, and sustainability", Eduardo Ramírez Cedillo, an economist from the Autonomous Metropolitan University-Iztapalapa, said that if there is no confidence in what government institutions are doing, it is necessary to make changes to improve them and then move forward.

And he added: to think that "to increase spending must coincide with the increase of tax revenues is an errant logic. The fine point is how it is going to be done. The advantages or not of increasing VAT or reducing the burden on companies, which would increase the tax base, must be widely discussed. Several things are relevant and must begin to be discussed; this is something that we are not doing in Mexico".

It is important to make progress in areas related to informality and the revaluation of labor issues to achieve greater income redistribution in the short term; in addition, social security systems must include the issues of poverty and income distribution.

The analysis carried out at the Seminar by experts from Mexico, Argentina, the United States, and Brazil will contribute to the construction of new theoretical paradigms for the coordination of fiscal, monetary, and exchange rate policies that include sustained growth, equitable income distribution, as well as the impact on economic development and social inequality in Latin America, especially in vulnerable groups, people living in poverty, and how it has affected the health system in the region.