Fiscal Devaluation and Fiscal Consolidation: The VAT in Troubled Times
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Summary:
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.
Series:
Working Paper No. 2012/085
Subject:
Consumption Consumption taxes Exports Fiscal devaluation International trade National accounts Tax policy Taxes Value-added tax
English
Publication Date:
March 1, 2012
ISBN/ISSN:
9781475502480/1018-5941
Stock No:
WPIEA2012085
Pages:
48
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