The contribution of tax expenditure in fiscal consolidation in post-crisis economies: a case study of the context in Portugal

João Ricardo Catarino; Rui Miguel Alcario Salvador; Ricardo de Moraes e Soares

doi:10.5007/2177-7055.2021.e84254

Authors

João Ricardo Catarino University of Lisbon https://orcid.org/0000-0001-9372-083X
Rui Miguel Alcario Salvador University of Lisbon https://orcid.org/0000-0002-6255-3116
Ricardo de Moraes e Soares University of Lisbon https://orcid.org/0000-0002-7840-7340

DOI:

https://doi.org/10.5007/2177-7055.2021.e84254

Abstract

In this research, we analyse the use of fiscal expenditure as an instrument of fiscal consolidation policy. Portugal was subject to the financial assistance programme (PAEF) articulated with the IMF, the European Commission and the European Central Bank between 2010 and 2014. The objective is to analyse the evolution of fiscal expenditure in the following four years, after the end of that term programme, that is, between 2015-2018. The outcome is to know if the policy of reducing fiscal expenditure implemented in the years in which the programme was in force (2010-2014), continued into the following four years. We compared this evolution with the evolution of direct expenditure, based on two main axes: economic expenditure and social expenditure. The data collection technique is used through document research, and the data obtained was from information provided by national, European statistical authorities and secondary sources of information. It is concluded that, in the 2014-2018 period, the increase in public revenue, due to the decrease in tax expenditure, did not evolve consistently. In 2014-2018, direct public expenditure did not follow the same pattern as in the previous years of 2011-2014, given the functional equivalence of the two types of expenditure. Finally, to observe the relationship between the level of fiscal consolidation, carried out between the years 2010 and 2018, and the behaviour of tax revenue and expenditure, the Scheffé test was performed on the averages of the variables Total Revenue and Expenditure, and Tax Revenue and Expenditure. This was applied in order to observe if the averages of the variables are significantly relevant for the level of fiscal consolidation or if there are other variables, equally important, that were not taken into account in the study, but that had a preponderant role (such as the economic context). We have to statistically conclude that both the revenue and expenditure averages and the percentage averages are not all equal, as they are, in fact, all different between the groups analysed.

In order to clarify if the differences in revenue and expenditure and in the respective percentages are statistically significant or if, on the contrary, they are merely eventual, we previously verified their applicability through the assumptions of normality and homoscedasticity of each of the data sets, using the ANOVA test (Fisher, 1918). We observed that for both the amounts of revenue and expenditure, as well as the percentages, the p-value observed in the ANOVA test was equal to 0.000 (i.e. less than 0.050), implying the rejection of the null hypotheses and the acceptance of the alternative hypotheses, according to which the average values of the amounts of revenue and expenditure, and the average values of the percentages are not all equal. The general conclusion is that there was budget consolidation, but this must have been due to other factors, such as the economic environment, since there is no direct relationship between revenue, fiscal expenditure and budget consolidation in any of the periods studied.

Author Biographies

João Ricardo Catarino, University of Lisbon

Is an Integrated Researcher at the Center for Administration and Public Policy (Research Center registered at the Foundation for Science and Technology (FCT)), Institute of Social and Political Sciences, University of Lisbon. PhD in Social Sciences in the specialty of Public Administration at the University of Lisbon. Full Professor of Taxation, Public Finance and Financial Law at the Institute of Social and Political Sciences (ISCSP), University of Lisbon and at the Institute of Accounting and Administration of Lisbon (ISCAL), Polytechnic Institute of Lisbon. Member of several Portuguese Tax System Reform Commissions (IVA (1986); IRS, IRC (1989), Property Taxes (2003/2004) and IRS - Personal Income Tax (2014). Judge in arbitration Tax at the Administrative Arbitration Center (CAAD).

Rui Miguel Alcario Salvador , University of Lisbon

Has a Master's Degree in Public Administration (MPA), Institute of Social and Political Sciences, University of Lisbon (ULisboa); Postgraduate Degree in Accounting, Public Finance and Budget Management at Instituto Superior de Economia e Gestão (ISEG) / Universidade Técnica de Lisboa (UTL); Degree in Management from Universidade Autónoma de Lisboa (UAL). Performance of public functions in various bodies of the Portuguese Public Administration: Directorate General of Contributions and Taxes (DGCI), currently AT - Tax and Customs Authority, Directorate General of Budget (DGO), Inspectorate General of Environment and Spatial Planning (IGAOT) - holding the position of middle manager - and the Portuguese Court of Auditors.

Ricardo de Moraes e Soares, University of Lisbon

Is an Associate Researcher at the Administration Center and Public Policies (Research center registered at the Foundation for the Science and Technology (FCT)), Higher Institute of Social and Political Sciences, University of Lisbon. PhD in Public Administration in the specialty of Public Policies. Assistant Professor of Public Accounting, Management and Public Finance at the Institute of Social and Political Sciences (ISCSP), University of Lisbon.

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