Highlights :

 Abstract :
We propose a two-country DSGE model to analyze short-term and long-term impact of a modification of consumption and labor tax rate in one country in a currency union. The model embodies the fact that firms differ in their pricing behavior after a VAT tax increase. Due to the common monetary policy, national tax policies have large spill-overs on the rest of the currency union. Furthermore, a fiscal devaluation is different from a nominal devaluation due to the common monetary policy.

 Keywords : Fiscal Policy | Monetary Policy | DSGE | Value added tax | Monetary Union

 JEL : F55, C12