The perils of lax economic policy: The case of Chile during the COVID-19 pandemic

Abstract

This paper examines the short- and long-term effects of lax economic policy in Chile during the COVID-19 pandemic and discusses whether they promoted or inhibited sustainable economic growth and development. The case of Chile is worth studying because it straightforwardly describes the effects of passive and active economic policy on the economy. It is argued that the active or lax economic policy generated a short-term boom period and a long-term recessive environment. Lax economic policy in Chile distorted the price system and the intertemporal allocation of resources, stimulating consumption and indebtedness. Investments became less capital intensive, stagnating labor productivity and reducing growth and development. Regardless of external factors, the research shows that the recession of the Chilean economy emerged from lax economic policies and institutional uncertainty. These findings recognize the causes of the recessive environment of emerging economies, offering new insights into promoting sustainable economic growth and development post-crisis.