OECD Economics Department Working Papers
Working papers from the Economics Department of the OECD that cover the full range of the Department’s work including the economic situation, policy analysis and projections; fiscal policy, public expenditure and taxation; and structural issues including ageing, growth and productivity, migration, environment, human capital, housing, trade and investment, labour markets, regulatory reform, competition, health, and other issues.
The views expressed in these papers are those of the author(s) and do not necessarily reflect those of the OECD or of the governments of its member countries.
- ISSN: 18151973 (online)
- https://doi.org/10.1787/18151973
Fiscal Devaluation – Can it Help to Boost Competitiveness?
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.
Keywords: social security contributions, competitiveness, value added tax, fiscal devaluation
JEL:
H23: Public Economics / Taxation, Subsidies, and Revenue / Taxation and Subsidies: Externalities; Redistributive Effects; Environmental Taxes and Subsidies;
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
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