Fiscal Policy in Mexico: The FitzGerald Thesis Reexamined

Abstract

Interest continues in the Mexican government's finance and expenditure policy due to the severity and length of fiscal crises. According to FitzGerald, Mexican deficits were financed through increased savings crowding out consumption but not private investment. Using official IMF data this paper attempts to verify the FitzGerald thesis. By and large our results suggest the Mexican economy is best depicted along Keynesian lines and not FitzGerald's Kaleckian interpretation. This conclusion is further substantiated by the prolonged nature of the country's current economic crisis associated with record high central government deficits and subdued levels of private sector investment. If his thesis were valid for an earlier time (1951-65), many of these relationships disappeared between 1965 and 1981.