1. Tax policy and employment considerations Nordic lessons and Latvian constraints Welfare Conference, 15 November 2012, SSE Riga Morten Hansen Head of Economics Department Stockholm School of Economics in Riga morten.hansen@sseriga.edu

2. Outline Four bullet points to be addressed  Idea: There are some valuable lessons from the Nordic countries but there are also some Latvia-specific constraints not allowing for a blanket adoption of Nordic ideas Latvia – not a Nordic country by government spending Latvia – not a Nordic country by taxation Latvia – not a Nordic country by income equality Latvia – not a Nordic country by labour market participation, employment rate or unemployment rate

3. Total government revenue share of GDP, 2011, Nordics and Baltics

4. Latvia (and Baltics in general): Low tax & small state countries

5. Ranking: Wastefulness of government spending World Economic Forum, Global Competitiveness Report 2012-13

6. Constraints in terms of taxation… A progressive tax is: ”an absurd ideology and the People’s Party will never support it” Mareks Segliņš, (then) Minister for Justice July 2009, Latvian TV -but reducing the non-taxed minimum during the crisis was brutal -high incomes and wealth (e.g. property) still taxed very lightly

7. Gini coefficient, 2010

8. Gini coefficient, 2000 – 2010 Latvia and the Nordic countries

9. Activity rates/participation rates, 15 – 64 years where the Nordics shine…

10. Employment rates, 15 – 64 years, 2011 - where the Nordics shine again…

11. Unemployment rates, Baltics and Denmark Twenty years later, still high structural unemployment! Risk of bottlenecks

12. Just a few observations at the end… Latvian spending on active and passive labour market measures is low by EU27 standards. Should be many useful lessons from the Nordics. A Guaranteed Minimum Income (GMI) of 45 LVL per month cannot be enough to keep recipients from remaining structurally unemployed. Lowering GMI to 35 LVL will make matters worse. High level analysis and many recommendations in the World Bank report: https://openknowledge.worldbank.org/bitstream/handle/10986/3009 /567470v20ESW0P00disclosed0110280110.pdf?sequence=1

13. Thank you for your attention! Questions and comments are welcome Stockholm School of Economics in Riga Founded 1994