Conference Agenda

Fiscal devaluation has often been the focus of policy discussion within the eurozone as it provides a means by which southern European countries can regain competitiveness. It takes the form of a subsidy on labour, financed by taxing consumption. This paper discusses the effects of fiscal devaluation on the main macroeconomic variables in a two-country model with monopolistic competition, innovation, endogenous entry, and endogenous tradability. I found that trade balance can only be improved in a highly competitive market, but fiscal devaluation also causes utility to decrease in the country that implements it. Fiscal devaluation can be a prosper-thy-neighbor policy, regardless of the market structures and the productivity level of the economies. Comparing fiscal devaluation with more targeted subsidies, I find that only subsidizing labour in the innovation sector can lead to similar outcomes, while only subsidizing producing labour may cause a decrease in consumption and utility.

This paper examines transmission of global financial shocks to domestic interest rates in India using a state-dependent local projection framework. Results show that external shocks exert statistically significant and persistent effects on both policy rates and short-term money market rates, though strength of transmission varies across policy regimes. Foreign exchange intervention (FXI) provides partial insulation by dampening the persistence of shocks over time, particularly under strict intervention regimes. The findings also reveal important differences across instruments: under strict FXI, policy rates remain relatively insulated while money market rates adjust gradually through liquidity conditions; under light FXI, both rates respond more strongly and persistently. Importantly, the joint use of macroprudential policies and FXI can substantially neutralize the transmission of U.S. monetary policy shocks. The paper further finds that stronger fiscal support is associated with greater short-run insulation from external tightening, highlighting the complementary role of fiscal policy in stabilizing domestic financial conditions.

This paper examines urbanization in a multi-sector economy with productivity differences

and trade frictions. Location-specific non-traded goods imply decentralized outcomes are not in general socially optimal, even without typical externalities, like congestion or agglomeration. Optimal urbanization exceeds decentralized levels when productivity differences in non-traded goods are small, a case typical of developed economies, while developing countries tend to be overurbanized. A model calibrated to Brazilian data shows wedges remain quantitatively important in the presence of agglomeration and congestion effects. Urban-biased policies are closer to optimal outcomes when productivity gaps are extreme but may worsen urbanization distortions at intermediate productivity levels.

We evaluate whether India’s 2016 demonetization generated lasting improvements in tax compliance. Using the synthetic control method and cross-country panel data from 2005–2022, we find a statistically significant and persistent increase in sales and production tax revenues, which directly reflect recorded transactions in a cash-intensive economy, following demonetization. To assess whether this increase reflects improved tax compliance, rather than contemporaneous policy changes that altered the structure of indirect taxation, we examine income- and profit-based taxation as a falsification test and find no comparable long-run change. Moreover, cash usage declined and digital payments increased in 2016–2017, but both reverted to pre-demonetization trends thereafter, with no evidence of a decline in the size of the informal economy. Thus, demonetization itself did not generate durable improvements in tax compliance.