Optimal fiscal devaluation

Arbeitspapier

We study fiscal devaluation in a small-open economy with labor market search frictions. Our analysis shows the key role of both dimensions in shaping the optimal tax scheme. By reducing labor market distortions, the tax reform is welfare-improving. Yet, as it makes imports more expensive, fiscal devaluation lowers the agents' purchasing power, which is welfare-reducing. These contrasting effects give rise to an optimal tax scheme. Besides, transition matters. If the economy is better off in the long run, the required transitional saving effort increases the cost of the reform, thereby calling for a moderate magnitude of fiscal devaluation.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: IZA Discussion Papers ; No. 6624

Classification and Topics

• Classification: Wirtschaft ; Macroeconomics: Consumption, Saving, Production, Employment, and Investment: Forecasting and Simulation: Models and Applications ; Fiscal Policy ; Taxation and Subsidies: Efficiency; Optimal Taxation ; Wages, Compensation, and Labor Costs: Public Policy
• Subject: fiscal devaluation ; consumption tax ; payroll tax ; labor market search ; small open economy ; Dynamic General Equilibrium model ; Steuerreform ; Optimale Besteuerung ; Internationaler Wettbewerb ; Kleines-offenes-Land ; Arbeitsuche ; Dynamisches Gleichgewicht ; Theorie

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Langot, François ; Patureau, Lise ; Sopraseuth, Thepthida
• Event: Veröffentlichung
• (who): Institute for the Study of Labor (IZA)
• (where): Bonn
• (when): 2012

Further information

• Handle: http://hdl.handle.net/10419/62388
• Last update: 10.03.2025, 11:44 AM CET