@article{article_1755542, title={Regime Specific Fiscal Effects and the Conditional Role of Institutions: The Case of Mexico}, journal={Hitit Sosyal Bilimler Dergisi}, volume={18}, pages={669–682}, year={2025}, DOI={10.17218/hititsbd.1755542}, author={Gökpınar, Seher and Saraç, Taha Bahadır}, keywords={Enflasyon, Mali açık, Kurumsal Kalite, Markov Rejim Değiştirme Modeli, Meksika}, abstract={Institutional quality is a critical element in explaining the inflationary effects of fiscal deficits. Countries with strong institutions can limit the inflationary effects of fiscal deficits by implementing fiscal discipline more effectively. In contrast, in countries with weak institutional structures, deficiencies in transparency, accountability, government effectiveness, and policy consistency increase the inflationary pressures arising from fiscal imbalances. This study examines the impact of fiscal deficits on inflation in Mexico and the regime-dependent moderating role of institutional quality. To analyze the relationship dynamics that vary according to inflation regimes, a Markov Regime-Switching model was estimated using annual data for the period 2002–2022. The findings show that fiscal deficits are not directly effective on inflation under either regime. However, in the high-inflation regime, government effectiveness is statistically significant and creates a disinflationary effect. This result reveals that strong institutional structures play a critical role in reducing the inflationary effects of fiscal pressures under high-inflation conditions. In the low-inflation regime, the interaction term between fiscal deficits and government effectiveness is negative and significant. This indicates that institutional quality increases the effectiveness of fiscal discipline during periods when price pressures are limited. The findings reveal that institutional quality and regime type are critical factors in determining the inflationary effects of fiscal deficits. They also emphasize the importance of sustaining institutional reforms in countries aiming at price stability. In this context, the case of Mexico has shown that inflation regimes and institutional factors cannot be overlooked in evaluating the inflationary effects of fiscal deficits.}, number={3}, publisher={Hitit Üniversitesi}