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Trade and fiscal imbalances in Southeastern Europe: Can fiscal devaluation help?

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  • Vukšić, Goran
  • Holzner, Mario

Abstract

We examine the need, potential and likely effects of fiscal devaluation for a group of seven economies in Southeastern Europe. All the countries face external trade imbalances and most of them also experience large or growing fiscal problems. We conclude that fiscal devaluation could be a useful instrument to help these countries improve their trade balances without (further) deteriorating their fiscal positions. The results of our simulations show that a budget neutral fiscal devaluation in the amount of 1 percent of gross value added could yield short-run improvements in trade balances ranging from 0.56 to 0.94 percentage points of (initial) gross value added. Simultaneously, this is expected to have a positive impact on output as well, which should grow at rates between 0.15 and 0.25 percent.

Suggested Citation

  • Vukšić, Goran & Holzner, Mario, 2016. "Trade and fiscal imbalances in Southeastern Europe: Can fiscal devaluation help?," Economic Systems, Elsevier, vol. 40(4), pages 568-581.
  • Handle: RePEc:eee:ecosys:v:40:y:2016:i:4:p:568-581
    DOI: 10.1016/j.ecosys.2016.01.004
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    References listed on IDEAS

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    Cited by:

    1. Stähler, Nikolai, 2019. "Who benefits from using property taxes to finance a labor tax wedge reduction?," Journal of Housing Economics, Elsevier, vol. 46(C).
    2. Robert Ambrisko, 2019. "Fiscal Devaluation in a Small Open Economy," Russian Journal of Money and Finance, Bank of Russia, vol. 78(1), pages 67-88, March.
    3. Hubert Gabrisch & Doris Hanzl-Weiss & Mario Holzner & Michael Landesmann & Johannes Pöschl & Hermine Vidovic, 2015. "Steigerung der Wettbewerbsfähigkeit in der Balkanregion – Möglichkeiten und Grenzen," wiiw Research Reports in German language 3, The Vienna Institute for International Economic Studies, wiiw.

    More about this item

    Keywords

    Fiscal devaluation; Partial equilibrium model simulation; Southeastern Europe;

    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
    • F17 - International Economics - - Trade - - - Trade Forecasting and Simulation
    • F47 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Forecasting and Simulation: Models and Applications

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