Fiscal Devaluation in a Monetary Union
Electronic Access:
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Summary:
Using a DSGE model calibrated to the euro area, we analyze the international effects of a fiscal devaluation (FD) implemented as a revenue-neutral shift from employer's social contributions to the Value Added Tax. We find that a FD in ‘Southern European countries’ has a strong positive effect on output, but mild effects on the trade balance and the real exchange rate. Since the benefits of a FD are small relative to the divergence in competitiveness, it is best addressed through structural reforms.
Series:
Working Paper No. 2014/201
Subject:
Consumption Fiscal devaluation International trade National accounts Personal income tax Tax policy Taxes Trade balance Value-added tax
English
Publication Date:
October 30, 2014
ISBN/ISSN:
9781484312131/1018-5941
Stock No:
WPIEA2014201
Pages:
33
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