Sunday 23 September 2012

The poll tax moment of the Portuguese government

As I wrote in my last weekly column in Dinheiro Vivo, the government of Mr. Passos Coelho just went through its "poll tax" moment. As Mrs. Thatcher, more than twenty years ago, the government tried to implement an economic policy that (i) makes sense in some simple models of the economy, (ii) but has ambiguous effects once you change a few assumptions, (iii) was not progressive and because of that was politically toxic, (iv) led to widespread social protest, (v) and turned part of his own party and coalition against him.

Unlike Mrs. T, Mr. Passos Coelho seems to have been wise enough to move back before it was too late. Whether one agrees with the economic merits of the measure or not, kudos to him for stepping back from the trap that the great Mrs. Thatcher fell right into. Only time will show what the long-run consequences of this mis-step will be.

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