Fiscal regime shifts in Portugal

Afonso, António; Claeys, Peter; Sousa, Ricardo M.

http://hdl.handle.net/10400.5/15668

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Authors

Afonso, António

Claeys, Peter

Sousa, Ricardo M.

Abstract(s)

We estimate changes in fiscal policy regimes in Portugal with a Markov Switching regression of fiscal policy rules for the period 1978– 2007, using a new dataset of fiscal quarterly series. We find evidence of a deficit bias, while repeated reversals of taxes making the budget procyclical. Economic booms have typically been used to relax tax pressure, especially during elections. One-off measures have been preferred over structural ones to contain the deficit during economic crises. The EU fiscal framework prompted temporary consolidation, but did not permanently change the budgeting process.