{
  "title": "Fiscal Devaluation and Fiscal Consolidation: The VAT in Troubled Times",
  "publication": "IMF Working Papers, March 1, 2012",
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  "summary": "This paper focuses on two core tax design issues that arise in addressing current fiscal challenges. It first explores the idea, prominent in troubled Eurozone countries, of a \"fiscal devaluation\": shifting from social contributions to the VAT as a way to mimic a nominal devaluation.",
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    {
      "heading": "Summary",
      "content": "- Focus: two core tax design issues for current fiscal challenges.\n- First issue examined: \"fiscal devaluation\"—shifting from social contributions to the VAT to mimic a nominal devaluation.\n- Empirical evidence (for Eurozone countries):\n  - Suggests fiscal devaluation may improve the trade balance in the short-run.\n  - As theory predicts, the effects eventually disappear.\n- Second issue examined: wider scope for VAT reform to meet fiscal consolidation needs.\n  - Develops and begins to apply a methodology for finding additional VAT revenue in ways less distortionary and fairer than further raising the standard rate."
    },
    {
      "heading": "Empirical findings on fiscal devaluation",
      "content": "- Context: Prominent policy idea in troubled Eurozone countries.\n- Short-run outcome: Improvement in trade balance associated with shifting taxation from labor (social contributions) to consumption (VAT).\n- Medium- to long-run outcome: Effects on the trade balance disappear, consistent with theoretical predictions."
    },
    {
      "heading": "VAT reform methodology and policy implications",
      "content": "- Objective: Identify additional VAT revenue options that are less distortionary and fairer than increasing the standard VAT rate.\n- Approach: Develops and begins to apply a methodology for evaluating VAT base and structure reforms.\n- Policy implication: VAT reform can be part of fiscal consolidation packages, potentially replacing labor taxation to achieve specific macroeconomic objectives (including temporary competitiveness improvements)."
    },
    {
      "heading": "Subject areas and keywords",
      "content": "- Subject: Consumption, Consumption taxes, Exports, Fiscal devaluation, International trade, National accounts, Tax policy, Taxes, Value-added tax\n- Keywords: consumer spending, Consumption, Consumption taxes, differenced VAT variable, Europe, Eurozone country, exchange rate, Exports, fiscal devaluation, labor market, reform package, tax reform, trade balance, value-added tax, VAT base, VAT increase, VAT performance, VAT policy, VAT reform, VAT reform package, VAT structure, WP\n\n---\n\n Content in this bundle\n\n- Wp1285\n  - Wp1285 (Markdown version){rel=\"alternate\" type=\"text/markdown\"}\n  - Wp1285 (PDF){rel=\"external\" type=\"application/pdf\"}\n\n---\n\nSource: https://www.imf.org/en/publications/wp/issues/2016/12/31/fiscal-devaluation-and-fiscal-consolidation-the-vat-in-troubled-times-25793"
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    "Authors: Michael Keen, Ruud A. de Mooij",
    "Published: March 1, 2012",
    "Series: IMF Working Papers",
    "DOI: https://doi.org/10.5089/9781475502480.001",
    "Focus: two core tax design issues for current fiscal challenges.",
    "First issue examined: \"fiscal devaluation\"—shifting from social contributions to the VAT to mimic a nominal devaluation.",
    "Empirical evidence (for Eurozone countries):",
    "Second issue examined: wider scope for VAT reform to meet fiscal consolidation needs.",
    "Context: Prominent policy idea in troubled Eurozone countries.",
    "Short-run outcome: Improvement in trade balance associated with shifting taxation from labor (social contributions) to consumption (VAT).",
    "Medium- to long-run outcome: Effects on the trade balance disappear, consistent with theoretical predictions.",
    "Objective: Identify additional VAT revenue options that are less distortionary and fairer than increasing the standard VAT rate.",
    "Approach: Develops and begins to apply a methodology for evaluating VAT base and structure reforms.",
    "Policy implication: VAT reform can be part of fiscal consolidation packages, potentially replacing labor taxation to achieve specific macroeconomic objectives (including temporary competitiveness improvements).",
    "Subject: Consumption, Consumption taxes, Exports, Fiscal devaluation, International trade, National accounts, Tax policy, Taxes, Value-added tax",
    "Keywords: consumer spending, Consumption, Consumption taxes, differenced VAT variable, Europe, Eurozone country, exchange rate, Exports, fiscal devaluation, labor market, reform package, tax reform, trade balance, value-added tax, VAT base, VAT increase, VAT performance, VAT policy, VAT reform, VAT reform package, VAT structure, WP",
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