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Fiscal Devaluation and Fiscal Consolidation

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Author Info

  • Michael Keen
  • Ruud A. de Mooij

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 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.

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Bibliographic Info

Paper provided by International Monetary Fund in its series IMF Working Papers with number 12/85.

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Length: 48
Date of creation: 01 Mar 2012
Date of revision:
Handle: RePEc:imf:imfwpa:12/85

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Related research

Keywords: Fiscal consolidation; Taxation; Value added tax;

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References

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  1. Michael Keen & Ben Lockwood, 2007. "The Value Added Tax: Its Causes and Consequences," Economics Working Papers ECO2007/09, European University Institute.
  2. Alexandre Mathis, 2004. "VAT indicators," Taxation Papers 2, Directorate General Taxation and Customs Union, European Commission, revised Apr 2004.
  3. Stephen C. Smith & Michael Keen, 2007. "VAT Fraud and Evasion," IMF Working Papers 07/31, International Monetary Fund.
  4. Matz Dahlberg & Anders Forslund, 2005. "Direct Displacement Effects of Labour Market Programmes," Scandinavian Journal of Economics, Wiley Blackwell, vol. 107(3), pages 475-494, 09.
  5. Farhi, Emmanuel & Gopinath, Gita & Itskhoki, Oleg, 2011. "Fiscal Devaluations," CEPR Discussion Papers 8721, C.E.P.R. Discussion Papers.
  6. Anna Ivanova, 2012. "Current Account Imbalances," IMF Working Papers 12/61, International Monetary Fund.
  7. Jaewoo Lee & Jonathan David Ostry & Alessandro Prati & Luca Antonio Ricci & Gian-Maria Milesi-Ferretti, 2008. "Exchange Rate Assessments," IMF Occasional Papers 261, International Monetary Fund.
  8. Kent Matthews, 2003. "VAT Evasion and VAT Avoidance: Is there a European Laffer curve for VAT?," International Review of Applied Economics, Taylor & Francis Journals, vol. 17(1), pages 105-114.
  9. Stephan Danninger & Alina Carare, 2008. "Inflation Smoothing and the Modest Effect of VAT in Germany," IMF Working Papers 08/175, International Monetary Fund.
  10. John C. Haltiwanger & Ron S. Jarmin & Javier Miranda, 2010. "Who Creates Jobs? Small vs. Large vs. Young," NBER Working Papers 16300, National Bureau of Economic Research, Inc.
  11. Brett, Craig & Keen, Michael, 2000. "Political uncertainty and the earmarking of environmental taxes," Journal of Public Economics, Elsevier, vol. 75(3), pages 315-340, March.
  12. Reckon, 2009. "Study to quantify and analyse the VAT gap in the EU-25 Member States," Taxation Studies 0029, Directorate General Taxation and Customs Union, European Commission.
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Citations

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Cited by:
  1. Stavros A. Zenios, 2013. "The Cyprus Debt: Perfect Crisis and a Way Forward," Cyprus Economic Policy Review, University of Cyprus, Economics Research Centre, vol. 7(1), pages 3-45, June.
  2. European Commission, 2013. "Tax reforms in EU Member States - Tax policy challenges for economic growth and fiscal sustainability – 2013 Report," Taxation Papers 38, Directorate General Taxation and Customs Union, European Commission.
  3. Barbara Annicchiarico & Fabio Di Dio & Francesco Felici, 2014. "Fiscal Devaluation Scenarios: A Quantitative Assessment for the Italian Economy," CEIS Research Paper 311, Tor Vergata University, CEIS, revised 09 Apr 2014.
  4. Nico Pestel & Eric Sommer, 2013. "Shifting Taxes from Labor to Consumption: Efficient, but Regressive?," SOEPpapers on Multidisciplinary Panel Data Research 624, DIW Berlin, The German Socio-Economic Panel (SOEP).

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