Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/113787
Authors: 
Adam, Antonis
Moutos, Thomas
Year of Publication: 
2015
Series/Report no.: 
CESifo Working Paper 5451
Abstract: 
In this paper we argue that supply-side adjustments (i.e. the reallocation of productive resources between the traded and non-traded sectors) can be an important determinant of the output costs of current account adjustment. The argument relies on the fact that tax evasion is more prevalent in the non-traded sector, which is dominated by services and the self-employed. Heavy reliance on tax-based fiscal consolidations induces a reallocation of economic activity towards the non-traded sector, thus requiring a larger decline in domestic absorption (and output) per unit of improvement in the current account balance. Using IMF data for the period 1980-2011 we find that budget consolidations which rely more on tax increases than on spending decreases will be associated with larger output costs per unit of current account improvement.
Subjects: 
current account adjustment
fiscal consolidation
sacrifice ratio
tax evasion
JEL: 
E62
F32
F41
Document Type: 
Working Paper

Files in This Item:
File
Size





Items in EconStor are protected by copyright, with all rights reserved, unless otherwise indicated.