Optimal Fiscal Devaluation

Francois Langot, Lise Patureau () and Thepthida Sopraseuth

Working Papers from HAL

Abstract: We study fiscal devaluation in a small-open economy with labor market search frictions. Our analysis shows the key role of both dimensions in shaping the optimal tax scheme. By reducing labor market distortions, the tax reform is welfare-improving. Yet, as it makes imports more expensive, fiscal devaluation lowers the agents' purchasing power, which is welfare-reducing. These contrasting effects give rise to an optimal tax scheme. Besides, transition matters. If the economy is better off in the long run, the required transitional saving effort increases the cost of the reform, thereby calling for a moderate magnitude of fiscal devaluation.

Keywords: Dynamic General Equilibrium mode; small open economy; labor market search; payroll tax; fiscal devaluation; consumption tax (search for similar items in EconPapers)
Date: 2012
Note: View the original document on HAL open archive server: https://hal.univ-lille.fr/hal-00989916v1
References: View complete reference list from CitEc
Citations: View citations in EconPapers (10)

Downloads: (external link)
https://hal.univ-lille.fr/hal-00989916v1/document (application/pdf)

Related works:
Working Paper: Optimal Fiscal Devaluation (2012)
Working Paper: Optimal Fiscal Devaluation (2012)
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:hal:wpaper:hal-00989916

Access Statistics for this paper

More papers in Working Papers from HAL
Bibliographic data for series maintained by CCSD ().