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.
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|Size: ||1.5 MB|
|Publisher: ||INTERNATIONAL MONETARY FUND|
|Date published: || 2014|
|ISBN: ||9781498336352 (DRM-EPUB)|
|Copying:||of 20 selections every 20 days allowed|
|Printing:||of 20 pages every 20 days allowed|
|Read Aloud: ||not allowed|