Fiscal Devaluation and Fiscal Consolidation: The VAT in Troubled Times

March 1, 2012

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Format: Chicago

Michael Keen, and Ruud A. de Mooij Fiscal Devaluation and Fiscal Consolidation: The VAT in Troubled Times, (USA: International Monetary Fund, 2012) accessed December 26, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

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.

Subject: Consumption, Consumption taxes, Exports, Fiscal devaluation, International trade, National accounts, Tax policy, Taxes, Value-added tax

Keywords: Consumer spending, Consumption, Consumption taxes, Differenced VAT variable, Europe, Eurozone country, Exchange rate, Exports, Fiscal devaluation, Labor market, Reform package, Tax reform, Trade balance, Value-added tax, VAT base, VAT increase, VAT performance, VAT policy, VAT reform, VAT reform package, VAT structure, WP

Publication Details

Pages:

48
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2012/085
Stock No:

WPIEA2012085
ISBN:

9781475502480
ISSN:

1018-5941

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