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Is fiscal devaluation welfare enhancing? : A model-based analysis

Title data

Hohberger, Stefan ; Kraus, Lena:
Is fiscal devaluation welfare enhancing? : A model-based analysis.
Bayreuth : Universität Bayreuth , 2015 . - 31 S. - (Wirtschaftswissenschaftliche Diskussionspapiere der Universität Bayreuth, Rechts- und Wirtschaftswissenschaftliche Fakultät ; 01-15 )

Official URL: Volltext

Abstract in another language

Large trade imbalances have emerged as major policy challenges for the euro area within the
last decade. As fiscal policy is the major macroeconomic policy instrument left with the
individual member countries of EMU, fiscal devaluation is a highly debated policy tool to
mimic the effects of an external devaluation by implementing a budgetary-neutral tax shift
from direct to indirect taxes. This paper uses a two-region two-sector DSGE model with
nominal wage and price rigidities to analyse the welfare effects of fiscal devaluation
understood as tax shift from social security contributions for employers to value-added tax in a small open economy in monetary union. This paper finds that fiscal devaluation can stabilise excessive trade balance fluctuations but implies welfare losses for the average household. The
results are robust to several sensitivity checks.

Further data

Item Type: Working paper, discussion paper
Keywords: fiscal devaluation; external imbalances; monetary union; welfare
Institutions of the University: Faculties > Faculty of Law, Business and Economics > Department of Economics > Chair Economics I > Chair Economics I - Univ.-Prof. Dr. Bernhard Herz
Faculties
Faculties > Faculty of Law, Business and Economics
Faculties > Faculty of Law, Business and Economics > Department of Economics
Faculties > Faculty of Law, Business and Economics > Department of Economics > Chair Economics I
Result of work at the UBT: Yes
DDC Subjects: 300 Social sciences > 330 Economics
Date Deposited: 15 May 2015 08:36
Last Modified: 04 Apr 2019 05:40
URI: https://eref.uni-bayreuth.de/id/eprint/13535