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The Covid-19 pandemic and its dramatic economic consequences are pushing national policy authorities to fight hard on all macroeconomic fronts – monetary as well as fiscal – through massive provision of liquidity to financial and nonfinancial entities and distribution of various forms of fiscal support to large categories of individuals and businesses. And much as medical research is frantically looking for effective treatments of the virus, economic research is searching for effective ways to counter economic recession (Baldwin and Weder Di Mauro, 2020).

Original ideas have emerged, and some are now been revisited, regarding alternative fiscal policy tools as means to support the economy, especially when other avenues are precluded. Some of these tools, discussed below, have become less of a taboo as macroeconomists have changed their overall attitude toward fiscal policy in the post Global Financial Crisis era and as monetary policy has shown its limited effectiveness in times of economic stagnation or depression (Bean et al, 2010).

The alternative fiscal tools, which I brand below under three classes of “unconventional” fiscal policies (UFPs), include: 

i) pre-announced distortionary taxation, 

ii) fiscal devaluations, 

and iii) fiscal money. 

Each UFP is discussed in turn.

Pre-announced distortionary taxation

Drawing on earlier proposals,[i] Correia et al. (2013) introduce a formal framework whereby engineering an increasing path of consumption taxes and a decreasing path for labor taxes, coupled with a temporary investment tax credit or temporary cut in capital income taxes, generates households’ higher inflation expectations and negative real interest rates (Fisher equation).[ii] The policy stimulates spending via intertemporal substitution effects that incentivize households to consume rather than save (Euler equation) and offsets the effective lower bound constraint.

This UFP differs from conventional tools in that it does not rely on income effects, it is time consistent and budget neutral. D’Acunto et al (2018, 2020) note that this policy does not require ineffective commitments to keep future interest rates low, nor does it cause wasteful government spending. The authors also provide evidence of the policy’s capacity to induce substitution over a very short horizon. By examining natural experiments in Germany and Poland in 2005 and 2010, respectively, they find that households behaved as predicted in response to a general increase in the value added tax.

However, while successful at rapidly achieving the desired outcome, this UFP might be unable to drive the economy out of states of deep recession or stagnation. As Baker et al (2019) observe, purchases (regardless of how they are financed) increase shortly before the tax increase, decrease immediately after the increase, and return to previous levels shortly after the tax increase. The policy, thus, only induces households to bring consumption forward in time while it does not raise consumption permanently, which is what would be necessary to achieve in an economy that is trapped in a persistent and deep state of recession, with price deflation or strongly anchored low-flation expectations. Furthermore, intertemporal substitution may be diminished by financial frictions, since households need wealth or credit to shift future expenditure to the present, but both wealth and credit decline during recessions when the fiscal stimulus is needed most.

In fact, the supposed strength of the pre-announced distortionary tax policy – its exclusive reliance on intertemporal substitution – may also be its greatest limitation. As the policy involves no income effect, no demand shock is triggered to stimulate output and prices, as conventional fiscal policies seek to do by allocating additional resources to those who can spend them (absent fully-offsetting Ricardian equivalence effects). And even if households are granted greater access to credit (absent frictions), they end up with larger debt burdens and hence tighter intertemporal budget constraints. These limitations do not affect the other UFPs discussed next.

Fiscal devaluations

This second UFP consists of a set of revenue-neutral fiscal instruments (e.g., tariffs and subsidies) that a country can use unilaterally to generate the same real outcomes as those following nominal exchange rate devaluations. It aims to stimulate growth in economies under fixed exchange rate regimes and can address divergences in competitiveness and trade imbalances without changing the nominal exchange rate. Farhi et al (2014) show that a fiscal policy devaluation based on a uniform increase in import tariff and export subsidy is equivalent to one based on a VAT increase and a uniform payroll tax reduction. Keen and de Mooij (2012) argue that this type of UFP can help troubled Eurozone countries, and recent findings from Ciżkowicza et al’s (2020) confirm that it would have significant expansionary effects especially in weaker Eurozone countries.

Already in 1931, John Maynard Keynes had proposed in the report of the Macmillan Committee (1931) to the British Parliament that a combination of a uniform ad valorem tariff on all imports plus a uniform subsidy on all exports can be used to mimic the effects of an exchange rate devaluation while holding to the gold pound parity.

In the 1950s-60s, as well as in the 2000s, various countries used the tax system to replicate the balance of payments impact of an exchange rate change. Laker (1981) analyzed the earlier episodes, which include France (1957-58), Israel (1955-62), India (1963-66), the Federal Republic of Germany (1968-69), and noted that fiscal devaluations had taken place in a number of Latin American countries. More recently, fiscal devaluation policies have been implemented by Denmark (1988), Sweden (1993), Germany (2006), and France (2012).

Past analyses suggest that this policy is exposed to some critical challenges and risks, the most sensitive being the nonuniform application of tariffs and subsidies and the consequent (potentially serious) distortion effects on relative prices and resource allocation. Laker (cit.) observed that in many cases fiscal proxies were not applied uniformly, but on a selective and discriminating basis. Even in the case of France, where the policy had a comprehensive coverage, the tax and subsidy scheme adopted applied to about 60 percent of all imports (excluding coal, petroleum products, and major raw materials), about 65 percent of all exports (excluding iron and steel products, textiles, the latter being covered later), and all other transactions. More recently, the arguments against fiscal devaluation policy are similar to those against conventional exchange rate devaluation policy, in particular its long-run neutrality. However, more recently Gopinath (2017) has argued that the instruments underpinning fiscal devaluations are not neutral in either the short or the long run.

In fact, the major objection to a country decision to implement a fiscal devaluation policy would likely be political: if the country were a partner to an international exchange rate arrangement or monetary union, the policy would evoke the same criticism and opposition that a competitive exchange rate devaluation policy would raise. Both defy the very purpose of the country adhering to the fixed exchange rate mechanism or monetary union. This limitation does not affect the third type of UFP.

Fiscal money

The introduction of Fiscal money was advocated a few years ago by a group of Italian economists.[iii] At the time of writing, two law proposals on Fiscal money are under parliamentary attention in Italy and will soon be discussed by Parliament. 

Fiscal money was originally conceived for economies that do not have control over monetary (and exchange rate) policy and do not enjoy enough space for an active use of the fiscal budget.

Fiscal money would be introduced in the form of a tax offsetting certificate (TOC), which is a transferable and negotiable security issued by government, which grants its bearers the right to use it for obtaining tax rebates two years from issuance. The TOC is instantaneously exchangeable against euros or can be used as a means of payment (parallel to the euro) in a dedicated platform where it is accepted on a voluntary basis.

The TOCs would be allocated, free of charge, to supplement employees' income and reduce businesses' tax-wedge (the difference between before-tax and after-tax wages) on labor, and government could retain a fraction to fund public investments and social spending programs. A well-communicated program of sustained and prolonged issuances of new purchasing power in the form of TOCs would affect the expectations of firms and households, and encourage their spending decision through the income multiplier and investment accelerator effects. 

TOC allocations would also improve business competitiveness. By neutralizing the effect on imports of the demand stimulus (through leakages), the labor tax-wedge reduction would prevent the erosion of the income multiplier effect and the output gap would close without weighing on the country's external trade balance. Much like he Fiscal devaluation UFP discussed above, the effect of TOC allocations to firms on their gross labor cost would mimic a nominal exchange rate devaluation, but without the inflationary impact that the pass-through effect of an actual exchange rate devaluation would have on domestic prices.

Conservative estimates show that a Fiscal money program could bring the economy to a higher and steady real GDP growth path, generate sufficient tax revenues to offset the deferred tax rebates coming due, and allow public debt to progressively decline relative to GDP.[iv] Note that the deferral built into the TOCs is to allow that the new spending stimulates output and generates the fiscal revenues needed to cover the cost of the tax rebates.

The Fiscal money program would also be protected from the risk of fiscal underperformance by specific safeguards measures. Specifically, if the program were to underperform temporarily (in that it would create less revenue than what would be needed to cover the tax rebates), policymakers would pre-commit to restoring fiscal compliance. This could be achieved by financing select public investment with TOCs (instead of euros), raising taxes and simultaneously allocating additional TOCs, thus incentivizing TOC holders to reschedule their use for tax rebates by enhancing their value, and placing new TOCs in the market (in exchange for euros): a high cover ratio (that is, the ratio between government gross receipts and the tax rebates coming due upon TOC redemption) would make the extra TOC issuances fiscally sustainable. These measures would raise the needed euro-cash while avoiding the pro-cyclical effects of the standard EU safeguard measures. Importantly, they would prevent market uncertainties on the country's debt sustainability.

One of the most common objections to Fiscal Money is that TOC issuances would create budget deficit and raise debt (GFM, 2019). This is not so. First, according to the International Financial Reporting Standards, the TOCs would not constitute debt, since the issuer would be under no obligation to reimburse them at any future date. Second, as 'non-payable' deferred tax assets (DTAs), under the European System of Accounts, the TOCs would not have to be recorded in the budget until they would be used for tax rebates, which would not happen prior than two years after their issuance (ESA 2010). Finally, non-payable DTAs do not fall under the definition of the "Maastricht debt" and are not recorded as such in the related official statistics.[v]


Since the Global Financial Crisis, traditional macroeconomic tools have come into question as to their effectiveness in revamping the economy under extreme conditions. The quest for “unconventional” tools, which originated in the sphere of monetary policy, has extended into the area of fiscal policy, and the interest in such quest is intensifying as national policy authorities need to address the dramatic economic consequences of Covid-19.

The illustration of these unconventional tools in this article aims to raise the attention of the international community to the range of existing policy alternatives that should receive consideration, especially when other avenues are either ineffective or outright precluded, and to evaluate their relative pros and cons in relation to specific country circumstances.


Baldwin, R., and B. Weder di Mauro (2020), “Mitigating the COVID Economic Crisis: Act Fast and Do Whatever It Takes,” Vox, 18 March.

Baker, S., L. Kueng, L. McGranahan and B. T. Melzer (2019), “The interaction of household finances and unconventional fiscal policy,” Vox, 30 January.

Bean, C., M. Paustian, A. Penalver, and. T Taylor (2010) “Monetary policy after the fall,” Proceedings, Economic Policy Symposium, Jackson Hole, 267-328.

Bossone, B., and M. Cattaneo (2018), “New ways of crisis settlement: Fiscal Money as a tool to fight economic stagnation,” in P. Schiffauer (ed.), A single model of Governance or tailored responses? Historical, economic and legal aspects of European Governance in the Crisis, Veröffentlichungen des Dimitris-Tsatsos-Instituts für Europäische Verfassungswissenschaften, Band 19, Berliner Wissenschafts-Verlag, pp. 111-133, June 2018.

Bossone, B., and M. Cattaneo, (2015), “A parallel currency for Greece: Part I,” Vox, 25 May.

Bossone, B., and M. Cattaneo (2015), “A parallel currency for Greece: Part II,” Vox, 26 May.

Bossone, B., M. Cattaneo, M. Costa, and S. Sylos Labini, “Perché i certificati di compensazione fiscale non sono (e non possono essere) ‘debito’,” Economia e Politica, 17 Aprile.

Bossone, B., M. Cattaneo, M. Costa and S. Sylos Labini (2017), “Moneta Fiscale: il punto della situazione,” MicroMega, 17 giugno.

Bossone, B., M. Cattaneo, L. Gallino, E. Grazzini and S. Sylos Labini (eds.) (2015) “Per una nuova moneta fiscale: uscire dall’austerità senza spaccare l’euro,”, e-book MicroMega, 15 giugno.

Cattaneo, M. and G. Zibordi (2014), “Una soluzione per l’euro: gli strumenti per rimettere in moto l'economia italiana”, Hoepli Editore, marzo.

Ciżkowicza, P., B. Radzikowski, A. Rzońcaa, and W. Wojciechowskia (2020), “Fiscal devaluation and economic activity in the EU,” Economic, Modelling, Vol. 88, June, 59-81.

Correira, I., E. Farhi, J. P. Nicolini, and P. Teles (2013), “Unconventional Fiscal Policy at the Zero Bound”, American Economic Review 103(4), 1172-1211.

D'Acunto, F., D. Hoang, and M. Weber (2018), “Unconventional Fiscal Policy.” AEA Papers and Proceedings, 108, 519-23, May.

D'Acunto, F, D. Hoang, and M. Weber (2020), “Unconventional fiscal policy to exit the COVID-19 crisis,” Vox, 8 June.

ESA (2010), “Treatment of Deferred Tax Assets (DTAs) and Recording of Tax Credits Related to DTAs in ESA 2010), Eurostat Guidance Note, European Commission, Eurostat, 29 August 2014.

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Feldstein, M. (2002), “The role for discretionary fiscal policy in a low interest rate environment,” NBER Working Paper Series, Working Paper 9203, National Bureau of Economic Research, September.

GFM (2019), “CESifo and Fiscal Money: Omissions and Blunders,” EconoMonitor, 18 March.

Gopinath, G. (2017), “A Macroeconomic Perspective on Border Taxes,” Brookings Papers on Economic Activity, Fall.

Hall, R. E. (2011), “The long slump,” American Economic Review 101 (2), 431–469.

Keen, M., and R. de Mooij (2012), “Fiscal devaluation as a cure for Eurozone ills – Could it work?,” Vox, 6 April.

Laker, J. (1981), “Fiscal Proxies for Devaluation: A General review,” IMF Staff Paper, March 1981, Volume 28, Issue 1, 118-143.

Macmillan Committee (1931), British parliamentary reports on international finance: The report of the Macmillan Committee, London: H.M. Stationery Office.

Shapiro, M. D. (1991), “Economic stimulant: Sales Tax,” New York Times, 16 December.


[i] See, for instance, Shapiro (1991), Feldstein (2002), and Hall (2011).

[ii] Notice that the authors denominate this policy as “unconventional fiscal policy.” However, recognizing that there are other, profoundly different types of heterodox fiscal policies, this article uses the term “unconventional” to qualify them all under one whole class of policies, and defines each of them by pointing to a specific key feature that uniquely characterizes it. Also, qualifying all such policies as unconventional reflects on the fiscal front the same characterization used for the heterodox monetary policies run by central banks at the effective lower bound.

[iii] Fiscal money is broadly defined, as “any claims, private or public, which the state accepts from holders to discharge their fiscal obligations either in the form of rebates on the full value of the obligations or as effective values transfers (i.e., payments) to the state. Fiscal money claims are not legal tender and may not be convertible by the state in legal tender. However, they are negotiable, transferable to third parties, and exchangeable in the market at par, or below par, with respect to their nominal value” (Bossone and Cattaneo, 2018). The Fiscal money proposal was originally introduced by Marco Cattaneo (see Cattaneo and Zibordi, 2014). The proposal was further elaborated by Bossone et al (2017), which also analyses its economic, institutional, legal, and accounting aspects. On this blog, see Bossone and Cattaneo (2015a,b).

[iv] For projections, see

[v] Official statistics on national Maastricht debts do not record governments’ non-payable tax credits that are issued for sectoral purposes (e.g., property renovation, past losses, depreciation of assets), can be used for tax settlement, but do not involve debt repayment obligations for the issuing government.