Trade and fiscal imbalances in Southeastern Europe: Can fiscal devaluation help?

Goran Vukšić and Mario Holzner

Economic Systems, 2016, vol. 40, issue 4, 568-581

Abstract: We examine the need, potential and likely effects of fiscal devaluation for a group of seven economies in Southeastern Europe. All the countries face external trade imbalances and most of them also experience large or growing fiscal problems. We conclude that fiscal devaluation could be a useful instrument to help these countries improve their trade balances without (further) deteriorating their fiscal positions. The results of our simulations show that a budget neutral fiscal devaluation in the amount of 1 percent of gross value added could yield short-run improvements in trade balances ranging from 0.56 to 0.94 percentage points of (initial) gross value added. Simultaneously, this is expected to have a positive impact on output as well, which should grow at rates between 0.15 and 0.25 percent.

Keywords: Fiscal devaluation; Partial equilibrium model simulation; Southeastern Europe (search for similar items in EconPapers)
JEL-codes: E62 F17 F47 (search for similar items in EconPapers)
Date: 2016
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecosys:v:40:y:2016:i:4:p:568-581

DOI: 10.1016/j.ecosys.2016.01.004

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