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Strategies for Fiscal Reform in the Context of the EMU: the Case of Portugal

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  • Alfredo M. Pereira
  • Pedro G. Rodrigues

Abstract

The authors use an endogenous growth dynamic general-equilibrium model, which accommodates the institutional constraints of the Stability and Growth Pact, to study tax reform in Portugal. Simulation results suggest that tax cuts financed in a nondistortionary way increase long-term GDP; i.e., they are efficiency improving, but do not always increase welfare. The tradeoff between efficiency and welfare is alleviated when reductions in public spending or increased public indebtedness finance the tax cuts. Since these mechanisms are not realistic under the institutional setting of the Stability and Growth Pact, tax reform in Portugal must involve trading off distortionary tax margins. In this case, the best strategy to increase both efficiency and welfare is to increase investment tax credits and finance them either through personal income taxes or through employers' social security contributions. Copyright Blackwell Publishing Ltd 2004.

Suggested Citation

  • Alfredo M. Pereira & Pedro G. Rodrigues, 2004. "Strategies for Fiscal Reform in the Context of the EMU: the Case of Portugal," Review of Development Economics, Wiley Blackwell, vol. 8(1), pages 141-163, February.
  • Handle: RePEc:bla:rdevec:v:8:y:2004:i:1:p:141-163
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    Citations

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    Cited by:

    1. Alfredo Pereira & Rui Pereira, 2013. "Fossil fuel prices and the economic and budgetary challenges of a small energy-importing economy: the case of Portugal," Portuguese Economic Journal, Springer;Instituto Superior de Economia e Gestao, vol. 12(3), pages 181-214, December.
    2. Alfredo M. Pereira & Rui M. Pereira, 2017. "Reducing carbon emissions in Portugal: the relative roles of fossil fuel prices, energy efficiency, and carbon taxation," Journal of Environmental Planning and Management, Taylor & Francis Journals, vol. 60(10), pages 1825-1852, October.
    3. Pereira, Alfredo M. & Pereira, Rui M., 2014. "On the environmental, economic and budgetary impacts of fossil fuel prices: A dynamic general equilibrium analysis of the Portuguese case," Energy Economics, Elsevier, vol. 42(C), pages 248-261.
    4. Pereira, Alfredo & Pereira, Rui, 2017. "On the Effect of an Increase in the VAT on Electricity in Portugal," MPRA Paper 77594, University Library of Munich, Germany.
    5. Pereira, Alfredo & Pereira, Rui, 2016. "On the Optimal Use of Revenues from a CO2 Tax and the Importance of Labor Market Conditions," MPRA Paper 77630, University Library of Munich, Germany.
    6. Pereira, Alfredo M. & Pereira, Rui M. & Rodrigues, Pedro G., 2016. "A new carbon tax in Portugal: A missed opportunity to achieve the triple dividend?," Energy Policy, Elsevier, vol. 93(C), pages 110-118.
    7. repec:kap:enreec:v:67:y:2017:i:2:d:10.1007_s10640-015-9984-z is not listed on IDEAS
    8. Alfredo Marvão Pereira & Rui M. Pereira, 2015. "Achieving the Triple Dividend in Portugal: A Dynamic General-Equilibrium Evaluation of a Carbon Tax Indexed to Emissions Trading," Working Papers 155, Department of Economics, College of William and Mary.
    9. Pereira, Alfredo & Pereira, Rui, 2017. "The Role of Electricity for the Decarbonization of the Portuguese Economy - DGEP Technical Report," MPRA Paper 84782, University Library of Munich, Germany.
    10. Alfredo Marvão Pereira & Rui M. Pereira & Pedro G. Rodrigues, 2014. "On the Long-Term Impact of a Fiscal Devaluation: An Application to the Portuguese Case," Working Papers 116, Department of Economics, College of William and Mary.
    11. Alfredo Marvão Pereira & Rui M. Pereira, 2012. "DGEP - A Dynamic General Equilibrium Model of the Portuguese Economy: Model Documentation," Working Papers 127, Department of Economics, College of William and Mary.

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