Publications

In response to the financial crisis in the euro zone, the Lithuanian Free Market Institute (LFMI) has worked out and submitted to public institutions a plan which would help countries potentially exiting the euro zone to build stable and sound money. LFMI‘s proposal can be also used by the euro zone when attempting to strengthen the euro and to restore people‘s confidence in the single currency.

How far should redistribution go? Who should pay for it and how? What is the proper role of the State and what is better left to private initiative? Should insolvent banks be bailed-out? Is it better to tax individuals when they consume or as soon as they earn their income? Should we rely on taxation to bent individuals’ behaviour towards a cleaner, safer life (sin taxes and fat taxes)? Every one has—or should have—an opinion on those important questions.

WP 2012-03. Executive Summary The European crisis is not behind us and easy solutions do not readily present themselves. Some of the causes of the crisis may be regarded as…

This paper is excerpted from the forthcoming “IREF’s Yearbook on Taxation” 2012

On July 6 the Berlusconi government passed a first package of mandating modest immediate cuts in the expenditure and similarly modest immediate increases in tax revenue to address concerns on the capacity of Italy to serve its huge public debt. Because this was not enough to reassure markets, the government had to pass a second, more substantial, package of fiscal measures on August 13. Despite those packages and the drafting of a constitutional amendment requiring balanced budgets, Berlusconi’s government had to go off the stage and the new Monti’s team immediately introduced a third package. As a result, Italy probably never experienced since the tax reform of the 1970’s such a huge number of changes in its tax system. Changes refer both to the introduction of new taxes and to modification of tax rates and of the tax base of the present taxes.

This paper is excerpted from the forthcoming “IREF’s Yearbook on Taxation” 2012

In an unprecedented and historical move, the European Union forced the Irish government against its stated wishes to indebt itself in an € 85 billion international bailout comprising of the IMF, EU and bilateral loans. This bailout to ensure that the Irish government would continue to pay 100% of face value on maturing senior bonds in zombie banks will have increased government debt by over 40% of GDP by the time the bailout is completed in 2015. Despite such catastrophic economic conditions, the Irish economy is showing signs of recovery. In 2011, Ireland generated a record high annual trade surplus of just under € 44.7 billion, up by 3% on 2010. Regarding public finances, the 2011 budget saw a closing of the deficit by a further €6 billion. Budget adjustment over the period 2011-2014 is realized for two thirds through expenditure reductions and one third should be raised by taxation. It has been called the most “draconian” budget in the history of the state.

Portugal is traditionally a leftist country. Since the Carnation Revolution in 1974, in which the Left threw out the fascist government of Marcelo Caetano, it is fashionable in Portugal to be leftist and being labeled socialist. If a proof was needed, in the 2011 elections, all 6 parties in parliament claimed to be leftist parties, and all the three parties who signed the Troika memorandum (yes, the ones who signed it were: PS, PSD and CDS/PP) have Social or Socialist in its very name.

This paper is excerpted from the forthcoming “IREF’s Yearbook on Taxation” 2012

In view of the great fragility of French public finances, all the candidates to the April 2012 Presidential elections have felt the necessity to explain their strategy to put the country back on track, if elected. As a result, fiscal policy has attracted more public attention than rarely ever in the past. Although propositions seem to vary substantially from one candidate to the other, standing back they pretty much come down to the same two-tier plan: (1) cut some taxes here and raise some there so that the net balance is zero and (2) cut some public expenses here and increase some there so that net balance is zero or slightly positive (small reduction in public deficit). In short, no substantial reform, neither in the field of taxation or in the field of public expenditures, is to be expected. This, some say, is justified by the desire to save the country from recession (GDP is expected to stagnate during the first quarter of 2012 and to grow by 0.2% in the second quarter). Keynesianism is still popular there: A strategy that displays a great deal of stubbornness if we recall that France has already one of the highest levels of public expenditures in the world.

In recent years, the Baltic States have been showcased as an austerity success story. While the whole world has seen countries such as Greece, Spain and Portugal struggling to reduce their public spending, Lithuania has been hailed as an austerity example. Lithuanian success in public spending cuts has been widely acknowledged; yet simultaneous tax increases and their harmful effects have received less attention. Since the end of 2011, however, the country once again found itself embroiled in a budget crisis and is now moving down the dangerous road of tax hikes.

Last March 30, the Spanish Government announced its most important measures to reduce the fiscal deficit for 2012. These actions have been based on reducing public spending and, again, increasing taxes. “Again” because on December 30, 2011, the conservative new Government already raised the Personal Income Tax, making Spain one of Europe’s most heavily taxed countries.

WP 2012-02. Executive Summary The quality of the institutional environment is a crucial issue in understanding the effective outcome of fiscal decentralization initiatives. However, there has been so far very…