Portugal’s taxes filling a black hole says LSE economist
Portugal has consistently increased taxes in order to fill a black hole in the country’s public finances according to a London School of Economics economist.
To sort the problem out, Portugal’s leaders need to press ahead with economic reforms, particularly when challenges arise such as the gradual removal of ECB supportive measures and inflation says Professor Ricardo Reis.
In an interview with ECO online, the economist who was involved in a study by the Francisco Manuel dos Santos Foundation (FFMS) argues that the Portuguese economy is “stagnant” and needed measures such as cutting IRC tax when Portugal has been raising taxes for the past 20 years, or has been threatening to increase taxes to try and “cover a black hole” in the country’s finances.
The FFMS report he worked on “From made in to Created in: a new paradigm for the Portuguese economy” points to an ageing population and climate change as having a strong impact on the Portuguese economy in the future. The solution to these huge challenges demands a paradigm shift based on knowledge, qualifications and innovation which is the ‘created in paradigm’ part of the report .
Ricardo Reis says that a new model of economic growth is needed to increase social wellbeing over the next decade. The analysis covers seven distinct areas: ‘Economic environment: competition, markets and fiscal policy; Scientific systems and technology; Qualifications and the Labour market; Innovative SMEs; Territory and infrastructures; Direct foreign investment and global value chains; and National Ocean strategy’.
The study concludes that a more robust economic growth and greater convergence with the EU are essential to reduce poverty, inequality, guaranteeing the sustainability of the public debt and Social Security to avoid the vicious cycle of low growth, more emigration and less growth in Portugal.
Professor Reis is an academic consultant at the Bank of England and the Federal Reserve system, he directs the ESRC Centre for Macroeconomics in the UK, is a recipient of an ERC grant from the EU, and serves on the council or as an advisor of multiple organisations. He has published widely on macroeconomics. His main areas of research are inflation expectations, unconventional monetary policies and the central bank’s balance sheet, disagreement and inattention, business cycle models with inequality, automatic stabilisers, sovereign-bond backed securities, and the role of capital misallocation in the European slump and crisis.