'Fiscal Devaluation' and Fiscal Consolidation: The VAT in Troubled Times

By Ruud A. De Mooij, Michael Keen. Social Science Research Network, 2012

150 citations recorded by the source corpus.

This paper focuses on two core tax design issues that arise in addressing current fiscal challenges. It first explores the idea, prominent in troubled Eurozone countries, of a "fiscal devaluation": shifting from social contributions to the VAT as a way to mimic a nominal devaluation. Empirical evidence is presented which suggests that in Eurozone countries this may indeed improve the trade balance in the short-run, though, as theory predicts, the effects eventually disappear. The paper then assesses the wider scope for VAT reform in meeting fiscal consolidation needs, developing and beginning to apply a methodology for finding additional VAT revenue in ways less distortionary and fairer than further raising the standard rate.

Subfields: Accounting, Economics and Econometrics

View Paper: https://www.semanticscholar.org/paper/82beaada576f33941affa4a8bcf1eff2c81de360

Citations in the corpus

• Walking Hand in Hand: Fiscal Policy and Growth in Advanced Economies (2012, unknown): “De Mooij and Keen (2012) show that the effects of a “fiscal devaluation” on growth are larger in the short than in the long run.”
• Labor market policies and IMF advice in advanced economies during the Great Recession (2013, unknown): “33See Farhi et al. (2011) for a recent statement of the case for fiscal devaluation; and de Mooij and Keen (2012) for estimates of the potential impact. de Mooij and Keen stress that implementation of a fiscal devaluation requires many detailed choices that can “powerfully modify the impact of the…”