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On The Impact Of A Tax Reform Package In Portugal

Author

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  • Pedro G. Rodrigues

    (The Portuguese Ministry of Finance)

  • Alfredo M. Pereira

Abstract

In this paper we analyze a tax reform package recently proposed in Cavaco Silva (1999). We do so in the context of a dynamic general-equilibrium model of the Portuguese economy and we focus on the efficiency, welfare, and tax revenue effects of this package. Simulation results suggest that the tax reform package would induce, over the next twenty-five years, a GDP gain of between 0.36% and 0.89%, depending on the design of the compensatory changes necessary to achieve deficit neutrality. The proposed compensatory hike in the VAT rates is, in itself, insufficient to ensure deficit neutrality. Nevertheless, the reduction in private consumption it would induce, would lead to a net welfare loss over the same time span. In this case, the tax reform package would improve efficiency at the cost of reducing welfare. If the whole package were financed exclusively through increased non-distortionary taxation or through reductions in public consumption, the welfare losses would be avoided and welfare gains of up to 0.66% could be generated. It could be argued, however, that under the current institutional constraints associated with the Stability and Growth Pact it is difficult to realistically design the financing mechanisms in a way that would avoid the efficiency-welfare trade-off.

Suggested Citation

  • Pedro G. Rodrigues & Alfredo M. Pereira, 2000. "On The Impact Of A Tax Reform Package In Portugal," Computing in Economics and Finance 2000 353, Society for Computational Economics.
  • Handle: RePEc:sce:scecf0:353
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    File URL: http://fmwww.bc.edu/cef00/papers/paper353.pdf
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    Cited by:

    1. 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.
    2. 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.
    3. 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.
    4. Marto, Ricardo, 2013. "Assessing the Impacts of Non-Ricardian Households in an Estimated New Keynesian DSGE Model," MPRA Paper 55647, University Library of Munich, Germany.
    5. 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.
    6. repec:kap:enreec:v:67:y:2017:i:2:d:10.1007_s10640-015-9984-z is not listed on IDEAS
    7. 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.
    8. 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.
    9. 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.
    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.

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