The euro crisis,fiscal devaluation,and impacts on the tourism sector in the Spanish economy

Abstract

The current account imbalances between northern and southern euro area countries from 1998 to 2007 have been considered one of the key problems in the euro crisis. Cumulated over 12 years, the sustained differentials of high inflations in south countries led to a cumulative price differential relative to the north countries and contributed to the deterioration in competitiveness. In addition, south countries cannot use nominal currency devaluation, as it used to do before. Because of the high costs of internal devaluation, the policy option of a tax combination can replicate the effects attained under nominal exchange rate devaluation. In this article, we analyze the impacts of a fiscal devaluation on the tourism sector in the case of Spanish economy.