FISCAL DEVALUATION – AN ALTERNATIVE FOR MEMBERS OF A MONETARY UNION TO BECOME MORE COMPETITIVE

Before joining the Economic Monetary Union, governments could lead an independent monetary and exchange rate policy. When these countries are faced with a lack of competitiveness and weak prospects for economic growth, currency devaluation has been widely used as a tool for correcting external imbalances, at least in the short term. This instrument cannot be used (to) by Member states of the EMU; therefore a new tool for external devaluation has drawn attention. It is about internal or fiscal devaluation. This article approaches the issue of this fiscal policy instrument by using literature review. In this paper there are presented models and theories about fiscal devaluation and they are grouped in two categories: simulation studies and econometric models.