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Fiscal Devaluation – Can it Help to Boost Competitiveness?

Author

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  • Isabell Koske

    (OECD)

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.

Suggested Citation

  • Isabell Koske, 2013. "Fiscal Devaluation – Can it Help to Boost Competitiveness?," OECD Economics Department Working Papers 1089, OECD Publishing.
  • Handle: RePEc:oec:ecoaaa:1089-en
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    File URL: http://dx.doi.org/10.1787/5k3z2dckn2bw-en
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    Cited by:

    1. Barbara Annicchiarico & Fabio Dio & Francesco Felici, 2015. "Fiscal Devaluation Scenarios: A Quantitative Assessment for the Italian Economy," Open Economies Review, Springer, vol. 26(4), pages 731-785, September.
    2. repec:wsi:jicepx:v:08:y:2017:i:01:n:s1793993317500028 is not listed on IDEAS
    3. Aida Caldera Sánchez & Alain de Serres & Naomitsu Yashiro, 2016. "Reforming in a difficult macroeconomic context: A review of the issues and recent literature," OECD Economics Department Working Papers 1297, OECD Publishing.
    4. Hohberger, Stefan & Kraus, Lena, 2016. "Is fiscal devaluation welfare enhancing?," Economic Modelling, Elsevier, vol. 58(C), pages 512-522.
    5. repec:spr:weltar:v:154:y:2018:i:2:d:10.1007_s10290-018-0309-5 is not listed on IDEAS

    More about this item

    Keywords

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

    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies

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