Nova workboard

a blog from young economists at Nova SBE

Enriching Lisbon while it sleeps

With the local Portuguese elections of 2017, a heated debate on the Lisbon touristic municipal tax incidence arose. This tax is decomposed into an overnight tax (a 1€ extra charge per night introduced in 2016 with a maximum of 7€, yielding 13.5M€) and an air and maritime arrival tax (introduced in 2015 only in the airport and materialized on a 1€ extra charge per arrival, yielding 3.8M€ and borne by ANA, which refused its prolongation to 2016). Basically, the arrival tax applies to all citizens except Lisbon residents, children under two years old and passengers having their connection flight in Lisbon and the overnight tax to every citizen above thirteen years old.

The effectiveness of the lodging tax has been recognized even by the political parties who voted against it. However, improvements can still be achieved. One discussed proposal is to increase the tax to 2€/night to guarantee more affordable housing opportunities, though its opponents defend that Lisbon cannot rely on the touristic tax to solve its structural problems. This critic seems reasonable because when taxes increase by 1% (perceived by consumers as a price increase), guests´ behavior may change (lodging demand elasticity) – empirical data shows a fall on the occupation rate. Nevertheless, the more inelastic the lodging demand (insensitive to tax increases), the higher the success probability of such policy.

If the local government´s objective is to increase the revenue levied by this tax, then two less obvious alternatives can be explored. Firstly, following Ancona´s (Italy) example, Lisbon´s city council could set a fixed tax independent of the accommodation´s length. Given an average stay in the capital of 2,36 nights and assuming no substantial future changes, setting a tax superior to 2,36€/person would expectedly generate a higher recipe. A possible critic here is the higher the number of nights spent in Lisbon, the higher the benefit acquired so discriminating the overnight tax according to benefit levels delivered to the tourist seems reasonable (benefits principle).

Secondly, note Paris´ example where lodging taxes vary according to the accommodation´s number of “stars”. Since hotels with five, four and three stars lodge most tourists in Lisbon, by setting a tax above 1€/per night for these accommodations and a lower tax for the remaining (tourism progressive taxation), the town hall could expect to increase overnight total tax revenue. Additionally, bearing in mind equity considerations, this proposal is justified by the typically higher predisposition to pay a superior tax of a tourist that stays in a three to five-star hotel than the one who stays in a hostel (diminishing marginal utility of income). However, this alternative presupposes not a fall on overall consumption but rather induce high spending tourist to “reduce only their savings”.

Personally, such tax makes absolute sense as to improve the quality of the city (not decrease the number of visitors), since the increase in Lisbon tourism is exerting higher pressure on existing resources. Accordingly, the proposed alternatives would be more efficient to achieve the desired goal while generating a higher revenue.

Margarida Castro Rego | 23848


Environmental Tax Reform: A brief overview.

With the 20-20-20 target in mind, set by the European policy makers for the year 2020, it has never been of such importance for countries to discover ways to reduce pollution while not hurting their economy at the same time. In order to achieve the latter, the European Environment Agency (EEA) came with the idea of reforming the environmental taxation in countries which could consequently achieve a pollution reduction while improving other factors (social, economic,…) at the same time.

So what is an Environmental Tax Reform (ETR)?

An Environmental Tax Reform is by definition ‘a reform of the national taxation system where there is a shift of the burden of taxes from example labour/capital towards environmentally damaging activities such as unsustainable use of natural resources or pollution.’ In sum, with the measure, governments should lower taxes on production capital and raise taxes on activities that are harming the environment. This can be implemented in 3 different ways: First, governments of countries can carry out the ETR in a revenue-neutral way, i.e. leaving total taxes unchanged. Second, it can be carried out in a revenue-positive way, increasing the total tax burden and revenue for the government and third, in a revenue-negative way which is the case when not all taxes have been recycled. Although revenue-positive ETR sounds seductive for governments, it is however advisable to implement the reform in a neutral way, as it would be able to damage a country’s economy when taxes are already high and an additional tax would be levied. Now, how could an ETR ultimately benefit the economy?

A first effect one can describe is the one that the reform is designed to do: reducing environmental pollution. Companies will have an incentive to decrease their waste as to avoid taxes. Additionally, the ETR will have the effect of making various goods and activities (mostly bad for the environment) much more expensive as companies, who face additional taxes, will somehow pass on these cost to the end-consumer. Third, and most importantly, shifting taxes from labor to pollution may increase employment and promote ecological innovation. Why? Companies, after the implementation of ETR, will face less wage-costs and may therefore willing to create extra job opportunities within their organization. For example, a study by the EEA has shown that increasing the price of one tonne carbon dioxide to €68 by 2020 could create 152000 extra jobs in Germany.

A last important effect stems from the extra government funds available by increasing tax on polluting activities. The aforementioned funds could be used to create incentives for companies to commit to innovation such as the development of renewable energy sources and in this way boost eco-innovation.

In sum, environmental taxes have always had the misleading reputation of being an impediment to economic activity while in fact, as I’ve tried to point out in this blog, they can serve as an important and successful tool for boosting employment, innovation and a country’s economy as a whole.


Vincent Caudron

Yes or No? – An economic and political question

Tomorrow, September 18th, the Scottish people will be called to vote in the referendum which will decide on the independence of that which may be the 197th country in the world. But a victory for the “yes” is likely to have not only geographical but also political and economic consequences.

Probably the most complicated issue to the UK are the oil reserves of the North Sea that belong to the Scottish geographical area. If “yes” win in the referendum , the Scottish First Minister , Alex Salmond, will complain about 90% of the reserves of oil and gas from the North Sea. And it is going to lead to complex negotiations involving the future of oil exploration licenses already issued by the British government to private companies, and there are even companies such as BP warns that it will reduce the exploitation of oil fields in the North Sea.

If the oil and natural gas revenues are considered, Scotland has a GDP per capita higher than the UK: 26,424 pounds per capita in Scotland, against 22,336 pounds in UK. Those resources represent 4.1% of GDP and a big part of the revenues generated with taxes. (Figure 1) But if the oil doesn’t count for assessing the GDP, it will be similar with a slight advantage for Great Britain. According to geographical area, North Sea oil and gas revenues would have accounted for over 15% of revenues in 2010-11 compared with 1.6% for the UK as a whole. But that revenues can be very volatile and as the Better Together” moviment explains “the Scots can not rely on oil revenues, which does not last forever.

Figure 1 – Tax revenue: Scotland and UK 2012-13

But not only with the coming oil revenues, the Scots have to worry. Public spending per head is about £ 1.200/ year higher in Scotland than in the UK as a whole (about £ 11.800 against 10.600 pounds in 2010-11). If Scotland remains within the UK, the country will continue to use tax money, the pension fund, the National Health Service and the military defense of the United Kingdom. If “no” wins tomorrow, the British government ensures greater devolution to Scotland and greater protection of the national health system. As the household income per capita is very similar in “both countries” and many scottish people are working in companies based in other countries continued to belong to the union of countries of the United Kingdom would cause expenditures did not increase, which would be beneficial for the economy.

Moreover, some financial institutions threatening to move their headquarters to London if it voted for independence, such as the Royal Bank of Scotland and Standard Life insurance company who say that going to be based on “City” London. This is an unfavorable decision to Scotland.

To conclude, “the scottish society is very dividedabout what vote for the referendum  tomorrow, according to Luiz Moutinho (Professor of Management at Glasgow Business School) and this will always be a tricky question on which there will be no consensus by all economic and political reasons related.

More references:

Diário Económico, Edição 16 de Setembro de 2014, “Londres conseguiu radicalizar sociedade escocesa”

Diário Económico, 17 de Setembro de 2014, “Independência escocesa fará subir juros britânicos”

José Maria Vaz Patto

Student no 732