Friday, February 24, 2012

"Fiscal Devaluation"

Gavyn Davies notes in the FT that an increased VAT offset by a cut in payroll taxes in effect gives you a devaluation by increasing the price of imports and decreasing the price of exports. This is what Sarkozy has proposed, and it's a good idea. Davies also advocates a temporary cut in corporate taxes, which Obama has proposed in the US.


FrédéricLN said...

Yes, it's like a devaluation, but a very tiny one. Let's remember we had so many devaluations by 3 or 5% in the 70's - 80's, they remained almost not visible.

To have something effective, you would need to push VAT around 25% or more: the practical and social limitations are quite immediate

Anonymous said...

factcheckers say it is not so for Sarkozy's proposal:


GORBY said...

This is the same proposal that Robert Cooper made at the 'Future of the Euro' talk last week. But I remember somebody making the objection that your first commenter makes - it would not be adequate as a devaluation.