Simple you wipe out payroll taxes both sides
And replace them with a vat that is universal
Ie covering all products
Tradeables and non tradable alike
If you share a currency with trading partners that are running big surpluses with you
like the piigs do with Germany
Then this is a way to improve relative labor cost
--end payroll tax--
without lowering nominal wages
Increase exports or reduce imports
and at the same time thru the increased vat
Maintain balanced budgeting
And unincreased total effect demand
And thus further contain import expenditures
by containing expenditures over all
Using
Substitution and income effects to correct trade imbalances
Of course a deval is a sharper option
When it's available
Because the substitution effect is greater
The domestic products are also reduced in relative price
A deval
unlike the payroll tax cut / vat increase
is simply the combo of
a tax on imports
And
a subsidy on exports
Not a general reduction in domestic production costs
And increase in the domestic prices of products
In fact if some part of income from reduced payroll tax
Is not spent the combined impact will be reduced expenditures
