TY  - RPRT
        AU  - Langot, François
AU  - Patureau, Lise
AU  - Sopraseuth, Thepthida
        TI  - Optimal Fiscal Devaluation
        PY  - 2012/Jun/
        PB  - Institute of Labor Economics (IZA)
        CY  - Bonn
        T2  - IZA Discussion Paper
        IS  - 6624
        UR  - https://www.iza.org/index.php/publications/dp6624
        AB  - 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.
        KW  - fiscal devaluation
KW  - consumption tax
KW  - payroll tax
KW  - labor market search
KW  - small open economy
KW  - Dynamic General Equilibrium model
        ER  -