Internal devaluation in a wage-led economy. The case of Spain



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Álvarez, Ignacio and Uxó, Jorge and Febrero, Eladio (2017) Internal devaluation in a wage-led economy. The case of Spain. [ Working Papers; nº 05, 2017, ISSN: 2530-0849 ]

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The aim of this paper is to use the theoretical distinction between wage-led and profit-led economies to consider the impact of internal devaluation policy on GDP growth for the case of Spain. We assess to what extent wage devaluation in Spain has proven useful vis-à-vis triggering an exportled strategy, boosting aggregate demand and overcoming the crisis. For said purpose, we estimate a Bhaduri-Marglin model drawing on quarterly data from Eurostat, and we expand the traditional model to take into account the effect of private debt on consumption and investment. Our main conclusion is that the Spanish economy can be characterized as a wage-led economy, and that therefore a wage share decrease proves counterproductive to growth. According to our calculations, internal devaluation policy detracted an average of 0.3 percentage points of annual economic growth during the period 2010-2016.

Item Type:Working Paper or Technical Report
Uncontrolled Keywords:Distribution; Demand; Wage share; Bhaduri-Marglin model; Debt
Palabras clave (otros idiomas):Distribución; Demanda; Participación salarial; Modelo de Bhaduri-Marglin; Deuda
Subjects:Social sciences > Economics > Depressions
Social sciences > Economics > Labor
JEL:E24, E25, E64
Series Name:Working Papers
ID Code:42692
Deposited On:17 May 2017 09:18
Last Modified:18 May 2017 07:58

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