Fiscal Devaluation in a Monetary Union

Author/Editor:

Philipp Engler ; Giovanni Ganelli ; Juha Tervala ; Simon Voigts

Publication Date:

October 30, 2014

Electronic Access:

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Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

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. 14/201

Subject:

English

Publication Date:

October 30, 2014

ISBN/ISSN:

9781484312131/1018-5941

Stock No:

WPIEA2014201

Price:

$18.00 (Academic Rate:$18.00)

Format:

Paper

Pages:

33

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