Fiscal Devaluations in EMU

José Boscá, Rafael Domenech and Javier Ferri

No 1211, Working Papers from BBVA Bank, Economic Research Department

Abstract: We use a small open economy general equilibrium model to analyse the effects of a fiscal devaluation in EMU. The model has been calibrated for the Spanish economy, that is a good example of the advantages of a change in the tax mix, given that its tax system shows a positive bias in the ratio of social security contributions over consumption taxes. The preliminary empirical evidence for European countries shows that this bias was negatively correlated with the current account balance in the expansionary years previous to the 2009 crisis, where many EMU members accumulated large external imbalances. Our simulations results point to positive significant effects of a fiscal devaluation on GDP and employment similar to the ones that could be obtained with a exchange rate devaluation. However, although the effects in terms of GDP and employment are similar, the composition effects of fiscal and nominal devaluations are not alike. In both cases, there is an improvement in net exports, but the effects on domestic and external demand are quite different.

Keywords: tax mix; fiscal devaluation; nominal devaluation (search for similar items in EconPapers)
JEL-codes: E47 E62 F31 (search for similar items in EconPapers)
Pages: 15 pages
Date: 2012-06
New Economics Papers: this item is included in nep-dge, nep-eec, nep-mac and nep-opm
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

Downloads: (external link)
https://www.bbvaresearch.com/wp-content/uploads/mi ... 11_tcm348-338126.pdf (application/pdf)

Related works:
Journal Article: Fiscal Devaluations in EMU (2013)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:bbv:wpaper:1211

Access Statistics for this paper

More papers in Working Papers from BBVA Bank, Economic Research Department Contact information at EDIRC.
Bibliographic data for series maintained by OSCAR DE LAS PENAS SANCHEZ-CARO ().