Fiscal Devaluation in a Small Open Economy

Robert Ambrisko

Russian Journal of Money and Finance, 2019, vol. 78, issue 1, 67-88

Abstract: Fiscal devaluation, meaning a shift from payroll to indirect taxes, can be beneficial for a small open economy such as the Czech Republic. Using a structural fiscal DSGE model, I show that fiscal devaluation can boost real GDP growth by 0.5 percentage points in the first year, when a budget-neutral tax shift of the magnitude of 1% of GDP occurs from direct taxes to consumption tax. I also calculate fiscal multipliers for several revenue and expenditure categories of the government budget, the largest of which (after the first year) are government consumption (0.6), government investment (0.5), and social security contributions paid by employers (0.4). These results corroborate the hypothesis that the government can easily boost the economy by adjusting fiscal instruments appropriately.

Keywords: Bayesian estimation; DSGE; fiscal devaluation; fiscal multipliers; fiscal policy; taxation (search for similar items in EconPapers)
JEL-codes: C11 E32 E62 F41 (search for similar items in EconPapers)
Date: 2019
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Persistent link: https://EconPapers.repec.org/RePEc:bkr:journl:v:78:y:2019:i:1:p:67-88

DOI: 10.31477/rjmf.201901.67

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