'Fiscal Devaluation' and Fiscal Consolidation: The VAT in Troubled Times

Ruud de Mooij and Michael Keen

No 17913, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: This paper focuses on two core tax design issues that arise in addressing current fiscal challenges It first explores the idea, prominent in troubled Eurozone countries, of a 'fiscal devaluation:' shifting from social contributions to the VAT as a way to mimic a nominal devaluation. Empirical evidence is presented which suggests that in Eurozone countries this may indeed improve the trade balance quite sizably in the short-run, though, as theory predicts, the effects eventually disappear. The paper then assesses the wider scope for VAT reform in meeting fiscal consolidation needs, developing and beginning to apply a methodology for finding additional VAT revenue in ways less distortionary and fairer than further raising the standard rate.

JEL-codes: F32 H20 (search for similar items in EconPapers)
Date: 2012-03
Note: IFM ITI PE
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Citations: View citations in EconPapers (74)

Published as "Fiscal Devaluation" and Fiscal Consolidation: The VAT in Troubled Times , Ruud de Mooij, Michael Keen. in Fiscal Policy after the Financial Crisis , Alesina and Giavazzi. 2013

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Related works:
Chapter: "Fiscal Devaluation" and Fiscal Consolidation: The VAT in Troubled Times (2012)
Working Paper: Fiscal Devaluation and Fiscal Consolidation: The VAT in Troubled Times (2012)
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