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Harvard Economist Gita Gopinath Offers a Euro Cure

Gita Gopinath offers a way to mimic a devaluation without a euro bust-up
Gopinath’s “remarkably simple” solution uses creative taxation
Gopinath’s “remarkably simple” solution uses creative taxationPhotograph by Kelvin Ma/Bloomberg

When French President François Hollande unveiled a plan in November for a business tax credit and higher sales taxes as a way to revive the economy, he was implementing an idea championed by economist Gita Gopinath. A 41-year-old professor at Harvard University, Gopinath has pushed for tax intervention as a way forward for euro-area countries that can’t devalue their exchange rates. This so-called fiscal devaluation is helping France turn the corner at a time of extreme budget constraints, former Airbus chief Louis Gallois said in a report on France’s business competitiveness commissioned by Hollande.

Gopinath’s understanding of the theory took shape through her years teaching at Harvard and the University of Chicago, and particularly as a Ph.D. student at Princeton under the guidance of economists Kenneth Rogoff, Pierre-Olivier Gourinchas, and Ben Bernanke, now chairman of the Federal Reserve. While her earlier work on current accounts and balance of payments garnered praise, it’s her recent focus on the 17 euro-zone nations that has national leaders paying attention. “Gita is already a major star, at the top of her cohort in international macroeconomics and still rapidly growing as a scholar,” Rogoff says in an e-mail. He calls her internal devaluation strategy for the euro region “very influential.”