Impulse #2015/04: Fiscal Devaluation – a Route to More Growth?

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The global economy faces a number of economic challenges: Economic growth in most industrialized nations is slowing, the crisis-hit countries of Southern Europe are suffering the effects of low competiveness and, even in some G7 countries, sovereign debt has reached levels in excess of 100 percent of gross domestic product. Boosting production and employment by increasing public debt, therefore, is no longer an option. Expansive monetary policy is also reaching its limits, with central bank’s interest rates in most advanced industrialized nations already close to zero. The permanent increase in money supply raises the specter of inflation and speculative bubbles.This paper looks at the method of fiscal devaluation as a way to boost economic growth without increasing government debt.