Internal devaluation in a wage-led economy. The case of Spain

Ignacio Alvarez (), Jorge Uxó () and Eladio Febrero ()
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Jorge Uxó: Departamento de Análisis Económico y Finanzas, Universidad de Castilla – La Mancha. Instituto Complutense de Estudios Internacionales (ICEI). Universidad Complutense de Madrid.
Eladio Febrero: Departamento de Análisis Económico y Finanzas, Universidad de Castilla – La Mancha. Instituto Complutense de Estudios Internacionales (ICEI). Universidad Complutense de Madrid.

No 1705, Working Papers del Instituto Complutense de Estudios Internacionales from Universidad Complutense de Madrid, Instituto Complutense de Estudios Internacionales

Abstract: The aim of this paper is to use the theoretical distinction between wage-led and profit-led economies to consider the impact of internal devaluation policy on GDP growth for the case of Spain. We assess to what extent wage devaluation in Spain has proven useful vis-à-vis triggering an exportled strategy, boosting aggregate demand and overcoming the crisis. For said purpose, we estimate a Bhaduri-Marglin model drawing on quarterly data from Eurostat, and we expand the traditional model to take into account the effect of private debt on consumption and investment. Our main conclusion is that the Spanish economy can be characterized as a wage-led economy, and that therefore a wage share decrease proves counterproductive to growth. According to our calculations, internal devaluation policy detracted an average of 0.3 percentage points of annual economic growth during the period 2010-2016.

Keywords: Distribution; Demand; Wage share; Bhaduri-Marglin model; Debt (search for similar items in EconPapers)
Pages: 40 pages
Date: 2017
New Economics Papers: this item is included in nep-eec and nep-mac
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Journal Article: Internal devaluation in a wage-led economy: the case of Spain (2019)
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