Bilateral trade effects of fiscal devaluation: Evidence from OECD countries


KIRAL H., ERDEN L.

JOURNAL OF INTERNATIONAL TRADE & ECONOMIC DEVELOPMENT, vol.27, no.6, pp.585-606, 2018 (Journal Indexed in SSCI) identifier identifier

  • Publication Type: Article / Article
  • Volume: 27 Issue: 6
  • Publication Date: 2018
  • Doi Number: 10.1080/09638199.2017.1402945
  • Title of Journal : JOURNAL OF INTERNATIONAL TRADE & ECONOMIC DEVELOPMENT
  • Page Numbers: pp.585-606

Abstract

This paper empirically examines the effects of a fiscal devaluation on bilateral trade. To this end, employers' social contribution (ESC) and value-added tax (VAT), which stand as the factors that represent typical fiscal devaluation, are embodied within the framework of a gravity model. Fixed effects vector decomposition (FEVD) technique is applied to the empirical models specified within this framework, employing panel data from 22 OECD countries over the 1980-2014 periods. The findings show that the effectiveness of the fiscal devaluation policy seems to alter with respect to how ESC and VAT are measured. Considering the fiscal devaluation policy implemented unilaterally, the policy turns out to be effective in nine countries in the sample.