IDEAS home Printed from https://ideas.repec.org/a/diw/diwdeb/2014-10-3.html
   My bibliography  Save this article

Fiscal Devaluation: Economic Stimulus for Crisis Countries in the Euro Area

Author

Listed:
  • Kerstin Bernoth
  • Patrick Burauel
  • Philipp Engler

Abstract

Member countries of the euro area, and the peripheral states in particular, face an especially difficult problem: on the one hand, they urgently need stronger economic growth to reduce high debt and unemployment levels. On the other hand, however, they have no scope to use fiscal policy to stimulate the economy. One way to strengthen economic growth without burdening public finances might be to implement a “fiscal devaluation.” This concept includes reducing social security contributions for employers—and therefore ancillary wage costs—making companies more price competitive than their foreign competitors. This, in turn, should stimulate exports and result in positive employment effects. Reducing ancillary wage costs could be financed by an increase in value-added tax. This study shows that a fiscal devaluation in the individual member countries of a currency union may help to boost economic growth in the short term. This instrument should therefore be particularly important for the crisis countries in the euro area, though it by no means replaces the structural reforms required to increase economic growth in the long term.

Suggested Citation

  • Kerstin Bernoth & Patrick Burauel & Philipp Engler, 2014. "Fiscal Devaluation: Economic Stimulus for Crisis Countries in the Euro Area," DIW Economic Bulletin, DIW Berlin, German Institute for Economic Research, vol. 4(10), pages 12-18.
  • Handle: RePEc:diw:diwdeb:2014-10-3
    as

    Download full text from publisher

    File URL: https://www.diw.de/documents/publikationen/73/diw_01.c.489534.de/diw_econ_bull_2014-10-3.pdf
    Download Restriction: no
    ---><---

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Lukas Vogel, 2017. "Stabilization and Rebalancing with Fiscal or Monetary Devaluation: a Model-Based Comparison," CESifo Economic Studies, CESifo Group, vol. 63(2), pages 235-253.
    2. repec:hal:spmain:info:hdl:2441/6kvjk9o32n8m88c6de3gc0gltj is not listed on IDEAS
    3. M¨¦dard MENGUE BIDZO, 2019. "The Hypothesis of Fiscal Devaluation in Developing Countries: The Case of Gabon," Applied Economics and Finance, Redfame publishing, vol. 6(5), pages 70-82, September.
    4. Zineddine Alla, 2017. "Optimal policies in international macroeconomics [Politiques optimales en macroéconomie internationale]," SciencePo Working papers Main tel-03436551, HAL.
    5. repec:spo:wpmain:info:hdl:2441/6kvjk9o32n8m88c6de3gc0gltj is not listed on IDEAS
    6. Hasim Akca & Oguzhan Bozatli, 2020. "Fiscal devaluation and net export: dynamic panel data analysis on the Euro Area," Applied Economics Letters, Taylor & Francis Journals, vol. 27(18), pages 1500-1504, October.
    7. Zineddine Alla, 2017. "Optimal policies in international macroeconomics [Politiques optimales en macroéconomie internationale]," SciencePo Working papers tel-03436551, HAL.

    More about this item

    Keywords

    Fiscal policy; fiscal devaluation; tax policy; trade balance; international competitiveness;
    All these keywords.

    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • F1 - International Economics - - Trade
    • H2 - Public Economics - - Taxation, Subsidies, and Revenue

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:diw:diwdeb:2014-10-3. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Bibliothek (email available below). General contact details of provider: https://edirc.repec.org/data/diwbede.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.