NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

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

Ruud de Mooij, Michael Keen

NBER Working Paper No. 17913
Issued in March 2012
NBER Program(s):IFM, ITI, PE

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 quite sizably 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.

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Document Object Identifier (DOI): 10.3386/w17913

Published: "Fiscal Devaluation" and Fiscal Consolidation: The VAT in Troubled Times, Ruud de Mooij, Michael Keen. in Fiscal Policy after the Financial Crisis, Alesina and Giavazzi. 2013

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