SummaryWe use a small open economy general equilibrium model to analyse the effects of a fiscal devaluation in an EMU country. The model has been calibrated for the Spanish economy, which is a good example of the advantages of a change in the tax mix given that its tax system shows a positive bias in the ratio of social security contributions over consumption taxes. The preliminary empirical evidence for European countries shows that this bias was negatively correlated with the current account balance in the expansionary years leading up to the 2009 crisis, a period when many EMU members accumulated large external imbalances. Our simulation results point to significant positive effects of a fiscal devaluation on GDP and employment similar to the ones that could be obtained with an exchange rate devaluation. However, although the effects in terms of GDP and employment are similar, the composition effects of fiscal and nominal devaluations are not alike. In both cases, there is an improvement in net exports, but the effects on domestic and external demand are quite different.
University students have been particularly affected by the COVID-19 pandemic. We present results from the first wave of the Global COVID-19 Student Survey, which was administered at 28 universities in the United States,
We study the size of government spending multipliers in a general equilibrium model with search and matching frictions in which we allow for different levels of household indebtedness. The main results of the paper are: (a) the presence of impatient households and private debt helps generate government spending multipliers greater than 1; (b) as financial conditions worsen and impatient consumers find it more difficult to borrow (i.e. in a credit crunch), the size of the government spending multiplier falls; (c) conversely, employment, vacancies and unemployment multipliers are larger when access to credit becomes more difficult; and (d) the model explains the observed pattern of responses of labour market variables, housing prices and private debt to a fiscal shock reasonably well. On these grounds it outperforms the standard model with RoT (Hand-to-Mouth) consumers whose predictions for the labour market are at odds with the data. As a side point, our framework makes it clear why RoT households' lack of asset holdings is responsible for the extremely high fiscal multipliers that they produce.
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