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Fiscal Devaluation – Can it Help to Boost Competitiveness?

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  • Isabell Koske

Abstract

The recent crisis has revealed large differences in external competitiveness between euro area member countries. Since nominal exchange rate devaluation is not an option for members of a currency area, governments in troubled member countries have been considering so-called fiscal devaluation, i.e. a shift from employers’ social security contribution to value added tax, as an alternative means to restore competitiveness. This paper discusses the potential benefits and drawbacks of such a reform and investigates under which circumstances it would have the intended effects. It argues that a fiscal devaluation can have transitory effects, but that any permanent real effects are likely to be small in size. The policy tool can thus not be a substitute for deeper structural reforms of labour, product and financial markets. However, it may be helpful as part of a broader package of reforms. Dévaluation fiscale - peut-elle aider à stimuler la compétitivité ? La crise récente a révélé de grandes différences de compétitivité externe entre les pays membres de la zone euro. Comme la dévaluation du taux de change nominal n'est pas une option pour les membres d'une zone monétaire, les gouvernements des pays membres en difficulté ont examiné la dévaluation fiscale, c'est à dire substitution de la taxe à la valeur ajoutée aux cotisations sociales des employeurs, comme un autre moyen de rétablir la compétitivité. Ce document examine les avantages et les inconvénients d'une telle réforme et analyse les circonstances dans lesquelles il aurait les effets escomptés. Il soutient que la dévaluation fiscale peut avoir des effets transitoires, mais que les effets réels permanents sont susceptibles d'être faibles. Cet outil de politique ne peut donc pas se substituer à des réformes structurelles plus profondes des marchés du travail, des produits et financiers. Toutefois, il peut être utile dans le cadre d'un ensemble plus large de réformes.

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Bibliographic Info

Paper provided by OECD Publishing in its series OECD Economics Department Working Papers with number 1089.

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Date of creation: 02 Oct 2013
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Handle: RePEc:oec:ecoaaa:1089-en

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Keywords: value added tax; social security contributions; competitiveness; fiscal devaluation; compétitivité; Dévaluation fiscale; cotisations sociales; taxe à la valeur ajoutée;

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Cited by:
  1. Barbara Annicchiarico & Fabio Di Dio & Francesco Felici, 2014. "Fiscal Devaluation Scenarios: A Quantitative Assessment for the Italian Economy," CEIS Research Paper, Tor Vergata University, CEIS 311, Tor Vergata University, CEIS, revised 09 Apr 2014.

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