Cover IMF Working Papers
Fiscal Devaluation in a Monetary Union
Author: Philipp Engler, Mr. Giovanni Ganelli, Juha Tervala, and Simon Voigts
Series:
IMF Working Papers
Volume/Issue:
Volume 2014: Issue 201
Language:
English
Publication Date:
30 Oct 2014
DOI:
https://doi.org/10.5089/9781484312131.001
ISBN:
9781484312131
ISSN:
1018-5941
Pages:
33
Keywords:
WP; Southern European countries; expenditure switching; Fiscal devaluation; fiscal policy; euro area; currency union; current account; output effect; Southern European countries of the Southern European countries; trade balance effect; open economy; expenditure switching effect; households in Southern European countries; imperfect competition; fiscal devaluation in Southern European countries; deficit in Southern European countries; devaluation in Southern European countries; Value-added tax; Trade balance; Consumption; Personal income tax; Southern Europe
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IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.
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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.
Cover IMF Working Papers
IMF Working Papers
ISSN:
1018-5941
Publisher:
International Monetary Fund