Publications

Portugal has a long tradition of corporate tax evasion. Perception of high tax burden, social tolerance to fraud and evasion, high psychological fiscal pressure* , instability and insecurity of the tax codes and complex and slow fiscal system are the factors usually pointed as the ultimate causes for this phenomenon.

2009/2010 has been a period of phoney fiscalism in the United Kingdom. The period is sandwiched between the economic crisis, which put fiscal policy onto an emergency, macro-economic footing and an election (May 6th 2010). Economic crisis has been marked in the UK as in most other countries by a severe worsening of the fiscal balance which has been supported for now by government borrowing and straightforward money-creation (“quantitative easing”). The political constraint of election has led to a more than usually cosmetic approach to changes in the structure of taxation.

It’s not unusual to hear people criticise the fiscal competition states engage in, pretending that such practices lead to losses in tax revenues. In this matter, the expression “harmful fiscal competition”, which is notably retained by the European Union, is often used, though sometimes inappropriately. The “harmful” character of fiscal competition between states is actually rather questionable and one may seriously doubt the very existence of such a harmful character, regardless of its form and the circumstances that accompany it.

Looking for budget savings

Some analysts are suspecting that the current fragile economic recovery will be damaged by the policy of government spending cuts that many countries undertook in order to reduce their public budget deficits. The debate is perfervid, in particular in the US where the government has opted for the keynesian policy of massive public spending. The effects of this policy, as was to be expected, have been so far calamitous and the American deficit is not about to be absorbed. Furthermore, tax reductions introduced by Bush in 2005 will expire next December and, most probably, will not be extended. An additional fiscal burden will therefore hit an already suffering economy.

This paper appeared in The Wall Street Journal.

When the economic crisis struck in 2008, the French government assured its citizens that our social model would protect and cushion us; that we would not be hit nearly as hard as other countries in the downturn.

Two years later, one can hardly claim that France has been shielded by its social model. Unemployment has risen constantly, even more strongly than for our peers such as the U.K. and Germany. Even Germany has emerged better off than France, with its excellent export figures.

The economic crisis is far from having created only victims. In France and all abroad, government employees didn’t suffer from the recession at all.

The last data from Eurostat are evidencing that during the crisis the share of government payments for salaries became a bigger part of government spending. Thus, government employees have actually seen their revenues increase.

Following the last visit to Paris of the German Minister of Finances Wolfgang Schäuble, the French and German governments have decided to harmonize their tax systems. Both sides have emphasised the positive impact that such a harmonization could have on the economic growth in Europe and on the health of the euro.

The French Minister of Economy, Christine Lagarde, recently announced that the government will stimulate the housing market in an attempt to boost the economy. “Building and construction industry is a key sector, with important multiplier effect on the whole economy”, says Lagarde, “Our aim is to improve access to private property, knowing that only 58% of French citizens own their home, while the EU average is at 66%.”

It is summertime and everyone is happy to take a brake from what has been a terribly tormented spring. Many of our European politicians and policy advisers (IMF) feel satisfied—or at least claim to be—that they have done the right thing and kept the boat afloat. Now, they say, we just have to consolidate the job to make sure that a new big financial crisis, spurred by disastrous public finance in many EU countries, will not blow in our faces.

For getting out of the public finance crisis it is a good thing to cut on spending. To reform the public sector is even better. But is it also necessary to increase taxes? With few others, Jean Philippe Delsol, administrator of IREF, had developed the conviction from past experience that one should instead decrease the tax burden.