Abstract
Fiscal devaluation is a set of synhronized policy measures with the aim to stimulate economic growth and improve economy competitiveness by simultaneous decrease of gross labor costs and increase of tax burden on consumption. The precondition for successful fiscal devaluation is to comply with principle of fiscal neutrality. Fiscal devaluation could enhance competitiveness of the economy and contribute to improved trade balance. Implementation of fiscal devaluation might be beneficial to both, countries which belong to a currency union and countries with a high level of public debt denominated in foreign currency. Comparative analysis provided potential short and long term effects of fiscal devaluations and enabled assessment of structure of fiscal devaluation in Serbia. This article provides a framework for forthcoming debates on applicability of fiscal devaluation in Serbia and includes the potential structure of fiscal devaluation.
Highlights
The time of economic crisis is especially adequate for fiscal policy adjustments due to the necessity to stabilize economy in short term and enable sustainable economic development in mid and long term
Fiscal devaluation is a set of synhronized policy measures with the aim to stimulate economic growth and improve economy competitiveness by simultaneous decrease of gross labor costs and increase of tax burden on consumption
Fiscal devaluation is a set of synhronized policy measures with the aim to stimulate economic growth and improve competitiveness of the economy by simultaneous decrease of gross labor costs and increase of tax burden on consumption
Summary
The time of economic crisis is especially adequate for fiscal policy adjustments due to the necessity to stabilize economy in short term and enable sustainable economic development in mid and long term. Condition for effective implementation of active fiscal policy measures is acceptance of the fiscal neutrality principle. This principle signifies that the aggregate effect of fiscal policy changes must be revenue neutral and not jeopardize maintenance of macroeconomic stability. Complying with fiscal neutrality principle enables creation of new solutions and might deliver Pareto improvement
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