Taxes are the Swiss Army Knife of economic and social policy.
With enough ingenuity, you can attempt almost any policy goal,
from encouraging health insurance to discouraging pollution to
stimulating the economy, to name just three. Over at Bloomberg
Businessweek, Rina Chandran explains yet another use: helping a
troubled economy achieve the moral and economic equivalent of a
currency devaluation, without actually devaluing. That’s
particularly intriguing for countries in the Euro zone: The idea
of fiscal devaluation originates with John Maynard Keynes.
[Harvard Professor Gita] Gopinath’s insight was to advocate
fiscal devaluation for Europe’s beleaguered currency union in a
2011 paper she co-authored with her colleague Emmanuel Farhi and
former student Oleg Itskhoki, now an assistant professor at
Princeton. … The paper examines a “remarkably simple
alternative” that doesn’t require countries to abandon the euro
and devalue their currencies to revive growth through exports,
Gopinath says. By increasing value-