Viewing 31 posts categorized under Government Policy

The effects of R&D tax credits (SIFIDE scheme) on small and large firms in Portugal

February 27, 2024

Governments worldwide increasingly rely on incentive schemes to promote research and development (R&D) investment, foster innovation, and encourage economic growth. While in 2000, 19 out of the 38 OECD countries gave preferential tax treatment to business R&D expenditure, in 2022 this number increased to 33 countries. What is the effect of (R&D) tax credits on firms’ trajectory? Do firms become more efficient? Caption: Dynamic marginal effects on R&D-related expenditure from SIFIDE tax credits.

Exports response to changes in credit conditions

January 26, 2024

Exports represent one fourth of Portuguese GDP and are largely responsible for the economic recovery following the sovereign debt crisis. However, exports and exporters are also fragile as they display a strong dependence on bank credit. This paper studies the impact of an increase in the cost of credit for exporters. This increase is driven by a change in banking regulation (Basel III) which makes giving credit to exporters who sell in high-risk destinations more expensive for banks.

Loss given default in residential mortgage loans in Portugal

December 13, 2023

Expected costs of mortgage default depend on the borrower’s probability of default (PD) and the loss in the event of default (LGD). This paper studies the factors that characterize LGD using comprehensive loan-level data obtained from the Portuguese Central Credit Register. The paper finds that the initial loan-to-value (LTV) ratio is the most important determinant of the LGD of mortgage loans, although the relation between these two variables is not linear.

Can vocational education improve schooling and labor outcomes?

November 13, 2023

Does the vocational education and training (VET) track improve schooling and learning outcomes? Can VET address issues on youth unemployment? These questions are central to ongoing policy debates about how to best integrate young people in the labor market. VET can be a compelling option for all students but specifically for those at risk of dropping out from school. VET’s proposed main benefit is to facilitate school-to-work transition, particularly when training aligns with businesses’ skill requirements.

Supporting small firms through recessions and recoveries

March 30, 2023

Small firms often struggle in getting access to credit. This is especially true during recessions, when banks tighten credit supply. To overcome this, governments around the world have implemented different programs to help small firms. Despite the widespread implementation of these programs, evidence on their effectiveness is mixed and often challenged by difficulties in pinpointing the causal effects of the programs. For example, these programs are usually available to all small firms, who decide whether or not to enter the program.

Firm adaptation to the COVID-19 crisis

February 22, 2023

The COVID-19 crisis triggered a multitude of economic effects. At the microeconomic level, they varied across economic agents, notably firms, with some showing greater resilience than others, depending on intrinsic characteristics such as size and participation in international trade. Zooming in on firm size, the crisis was deeply felt by smaller firms. As for participation in international trade, stronger connections abroad increased firms’ exposure to global adverse shocks, while providing a broader scope for resilience-enhancing decisions about production and market management.

Investment grants and firm productivity

December 31, 2022

This paper evaluates the effectiveness of awarding multiple investment grants to the same firm. Several factors have contributed to bringing public subsidies back to the limelight: the COVID-19 pandemic, trade wars between the US and China, the war in Ukraine, and the disruption in global supply chains. These factors contributed to a global wave of public subsidies in China, in the United States, and in the European Union. This research assesses the impact of investment grants by the European Regional Development Fund (ERDF) on the productivity of Portuguese firms in 2007-2018.

Government support measures in Portugal during the COVID-19 pandemic

October 11, 2022

During the COVID-19 pandemic, the Portuguese government provided a plethora of different support measures for firms. These included state-guarantees for new loans and a public moratorium for existing ones. These measures have been essential to support firms in the most acute phase of the crisis by providing liquidity at reduced costs in a context of an abrupt increase in the level of risk. However, there are still open questions regarding the medium- to long-term impact of these measures.

Do subsidized nursing homes and home care teams reduce hospital bed-blocking?

September 24, 2022

According to the World Health Organization, excessive length of hospital stay is one of the leading sources of inefficiency in healthcare. One possible cause of excessive length of hospital stay is the lack of alternative care arrangements following a hospitalization. When a patient is medically fit to be discharged and yet requires some form of support outside the hospital (a short stay at a nursing home facility or home help), which is not readily available, the patient cannot be safely discharged.

Economic austerity and the political environment

July 27, 2022

Anti-establishment and EU-skeptic parties have gained significant support since the Great Recession and the subsequent European Sovereign Debt Crisis. Higher vote shares for these parties have increased partisan conflict and led to more fragmented parliaments. Interestingly, the rise in support for extreme parties occurred during a period of significant fiscal policy interventions. In particular, several European countries, such as Portugal, have implemented large-scale fiscal consolidation measures to reduce high levels of public debt, thereby averting the risk of sovereign default.

Cancer patients' survival following the reference centre model implementation

July 18, 2022

This paper performs a survival analysis of cancer patients in Portugal, assessing the impact of the creation of oncology Reference Centres (RCs). RCs are a highly specialized healthcare delivery centre, focused on addressing specific health conditions, such as cancer, and delivering best-in-class treatment. Oncology RCs have been officially recognized in Portugal since 2016, following the European Directive 2011/24/EU, and were a National Health System objective during the Economic Stabilization Program. In a context of financial resources scarcity, information about the efficacy of the investments made in RCs is crucial for decision-making concerning funds allocation.

Giving zombie firms a second chance

June 22, 2022

The survival of less productive firms hampers the aggregate productivity growth in most developed economies as they consume resources that would be more productive elsewhere. Stimulated by the forbearance of creditors and inefficient insolvency regimes, the zombie phenomenon is generally believed to weaken business dynamism. The paper analyses how the 2012 institutional reforms related to insolvency and prudential supervision of credit institutions, introduced by the Portuguese and European Authorities, have reduced the share of zombie firms in the economy, and how they have impacted the growth of aggregate productivity.

Loan guarantees and their implications for post-COVID-19 productivity

June 22, 2022

Many countries introduced or ramped-up loan guarantee schemes to bridge liquidity shortages as a key element of the policy response to the COVID-19 crisis. The analysis in this paper discusses the potential short and medium-term effects on productivity of loan guarantees via reallocation, relying on historical data on European firms. The findings suggest that, absent policy support, the COVID-19 shock had the potential to seriously distort market selection, as it would have raised sharply the probability to face financial difficulties across the whole distribution of firm-level productivity.

Evaluating fixed-term employment contracts

January 24, 2022

In February 2009, Portugal sought to promote the use of open-ended employment contracts by reducing the range of circumstances under which fixed-term contracts (FTCs henceforth) could be used by large firms. Before this date, new establishments were free to hire under FTCs. After February 2009, such flexibility applied only in the case of firms with fewer than 750 employees. Large firms could still hire under FTCs in new establishments in specific cases.

Wage inequality and firm reorganization when firm competition changes

November 19, 2021

This paper studies how increased domestic product market competition induces firms to change their internal organization and how this change affects wage inequality. The paper exploits the Empresa na Hora (Firm On the Spot) program in Portugal as a quasi-natural experiment of a shock to competition. The paper uses detailed employer-employee data for the analysis. The main findings are that increased domestic competition following the “Firm On the Spot” program leads firms to flatten their hierarchies by delayering and that reorganization is accompanied by a reduction in within-firm wage inequality.

A policy evaluation of the reform "Empresa na Hora"

November 10, 2021

This paper studies the effects of the 2005 reform Empresa na Hora (Firm on the Spot) on firm entry, exit, and employment decisions. Before the reform, starting a business implied a long and convoluted bureaucratic procedure that would take between two to three months to complete. After the reform, the duration of this process decreased to less than one hour. It also involved a substantial reduction in the monetary costs associated with firm creation.

Leaving school too early?

August 30, 2021

Reducing early school leaving, defined as leaving education with at most lower secondary schooling, is generally considered to be one of the top priorities of educational policy due to its significant social and economic costs. Increasing the Compulsory Schooling Law (CSL) leaving age is a policy that has typically been used to address this concern. The effects of the policy on students’ educational outcomes are still unclear, with the literature identifying mixed effects both on graduation probabilities and school track choices.

Helping the government promote its policies

July 1, 2021

Governments around the world devote substantial resources to support small and medium sized firms struggling with the consequences of economic and financial crises. A key question is whether the firms that stand to benefit most from government programs—for example, smaller firms or those with limited access to traditional financing—face information frictions that hamper access to aid. This paper tests whether informational frictions prevent firms from accessing government support measures. The paper considers the impact of providing detailed information on two COVID-19 assistance measures—a layoff support program and a guaranteed credit line scheme—on firm take-up using a sample of over 170,000 Portuguese firms (see figure).

Side benefits of promoting entrepreneurship

March 30, 2021

Are there societal side benefits to encouraging entrepreneurship? This study answers this question by looking at the effects of a policy promoting new firm creation on crime levels within municipalities. Between 2005 and 2009, the Portuguese government gradually introduced a deregulation reform (“Empresa na Hora”) in 144 out of 308 municipalities. In the municipalities targeted by this reform, the costs of establishing a firm declined drastically: it took just one hour and about 300 euros to become an “entrepreneur”.

The repercussions of the 2011 VAT increase on the tourism industry

January 4, 2021

Does a significant increase in VAT rates harm the tourism industry and if so how much? This paper investigates the consequences of a large increase in VAT rates on firm profitability and survival. In 2011, the Portuguese government increased the VAT by ten percentage points on catering services, restaurant meals, and beverages. The tourism sector in Portugal represents the biggest sector of the economy, and is composed of many small and medium-size firms, which are generally affected the most by such tax changes, at the same time being essential contributors to job creation and economic development.

Competition in the over-the-counter drug market after deregulation: evidence from Portugal

August 3, 2020

In 2005, Portugal allowed over-the-counter (OTC) drugs to be sold outside pharmacies, namely in supermarkets and outlets (parafarmácias). The rationale for OTC market liberalization was simple: the entry of new retailers, combined with free pricing, would lower OTC prices via increased competition. This paper examines whether the entry of new, non-pharmacy OTC retailers triggered price reductions by incumbent pharmacies. The analysis uses data on the prices of five popular OTC drugs at all retailers located in Lisbon, for periods after OTC market liberalization.

Labor productivity in state-owned enterprises

June 2, 2020

As a measure of austerity in the aftermath of the Global and Financial Crisis (GFC), the Portuguese government revoked four holidays for both public and private employees: two civilian (Republic Day and Restoration of Independence) and two religious (Corpus Christi and All Saints Day) holidays. A plausible motivation for canceling the two holidays was to increase the number of working days and thereby lowering labor costs. The move was effective starting in 2013 and was presented as a measure to increase productivity among public employees.

Are training grants a useful policy to increase productivity? (A policy suggestion during the coronavirus pandemic.)

March 16, 2020

Recent research by the European Investment Bank indicates that workers in Europe spend less than 0.5% of their working time on training. This figure seems too low and indeed there are good economic reasons to suggest some degree of under-provision of training. First, training is expensive for firms, as it entails significant direct and indirect costs. Second, employers know they will lose their investments in training if employees subsequently leave.

Local territorial reform and regional spending efficiency

September 12, 2019

Quite often, one encounters arguments advocating that mergers or amalgamation of territorial units are a pathway to reduce public spending and increase efficiency, pointing to advantages of economies of scale in the provision of public services. However, this article argues that these advantages might have been oversold. The article assesses the changes on municipal efficiency that stem from the 2013 Portuguese local territorial reform that reduced the number of local governments and parishes by around 29%.

Selection of projects to the Portuguese innovation incentive system

May 31, 2019

It is often argued that public policies to support investment and innovation play a vital role when firms have difficulties in accessing external finance. However, several studies have demonstrated that public support can have no effect on the policy targets or even have a negative effect on firm performance. One explanation for these findings could be the selection process to participate in public support programs. The aim of the article is to assess differences in investment project characteristics (expected impact) between firms with approved and non-approved applications and to understand which kinds of projects are selected for a subsidy.

Private saving determinants in Portugal

May 27, 2019

The combination of projected expenditure increases in the Portuguese public pension scheme and low rates of private saving constitutes a policy challenge, not least because the former may be associated with the later. The impact of public pension wealth on private saving has been widely studied since the late 1970’s, yet no consensus on the topic has been reached so far. Some authors find evidence that public pension wealth impacts negatively private saving, others argue that the effect is not statistically significant.

Labor market effects of the Portuguese unemployment insurance reform

March 7, 2019

The Portuguese labor reform of 1999 increased the maximum duration of unemployment benefits only for workers in specific age brackets. Workers with ages outside of the affected brackets had no change in the maximum benefit duration. Workers between 30 and 34 years old, for example, had the maximum benefit duration extended from 15 months to 18 months. But for workers between 35 and 39 years old, the maximum benefit duration was unchanged at 18 months.

Innovations in digital government as business facilitators: international evidence and implications for Portugal

June 25, 2018

Administrative and regulatory burden reduction has become a priority to improve governmental efficiency and economic competitiveness. Innovations in government through Information Communication Technologies are seen as key tools in designing policies to achieve those goals. Although Portugal has been improving in the business environment and electronic government development indicators and considered a top reformer in some international reports, it is still far from the best-performing countries in several dimensions. Using a large panel dataset, covering 174 countries from 2004 to 2016, we investigate a possible contribution of innovations in digital governments to facilitate business,and extract implications for Portugal.

Drug decriminalization and the price of illicit drugs

January 10, 2018

_One moderate alternative to the war on drugs is to follow Portugal’s lead and decriminalize all drug use while maintaining the illegality of drug trafficking. – _Gary S. Becker and Kevin M. Murphy (2013) In the late 1980s and 1990s a growing population of intravenous heroin users became a major threat to public health in Portugal, where rates of heroin users were among the highest in Europe. In the mid’90s Portugal engaged in an intensive debate on alternative enforcement policies to deal with drug use and, in 1998, a panel of leading scholars and medical professionals presented a report with recommendations rooted in understanding drug dependency as a disease rather than a crime.

Boom, slump, sudden stops, recovery, and policy options: Portugal and the Euro

June 29, 2017

Over the past 20 years, Portugal has gone through a boom, a slump, a sudden stop, and now a timid recovery. Unemployment has decreased, but remains high, and output is still far below potential. Competitiveness has improved, but more is needed to keep the current account in check as the economy recovers. Private and public debt are high, both legacies of the boom, the slump and the sudden stop. Productivity growth remains low.

Maximum duration of fixed-term labor contracts in recessions

November 20, 2016

Policy makers and academics put great effort in understanding and minimising the negative employment effects of business cycles. This paper evaluates one policy option in this regard: greater flexibility in the maximum duration of fixed term contracts during recessions. Its simple rationale is that, when faced with an uncertain outlook (and restrictive permanent contracts), firms may be more likely to dismiss fixed-term contracts if the only legal alternative is to convert them.