A Constitutional amendment from 2010, which demands a referendum for introducing new taxes or improving the tax rate (i) , and (ii) legislation on Economic Freedom (2011), in place since 2013, setting quite a few additional restrictions to government fiscal policy. Several economists have criticized this legislation as limiting the government’s power to utilize fiscal policy effectively. Many of the center-left MPs through the ruling party have actively endorsed this concept, proposing the revocation of your legislation. Other government officials, however, affirmed the that EFA, which does limit the discretionary power the costa rica government to add new taxes and expand the population budget, is in conjuction with the current government’s vision for economic development and consequently doesn’t have to be modified.

Given the significance of this item of Georgian economic legislation, in this post we’re going to discuss in greater depth the merits of both positions, looking separately at its two most relevant consequences:

  • the shortcoming from the government introducing new taxes (in order to boost the existing ones)
  • the constraints it poses to expansionary fiscal policies.

No new or better taxes?

Requiring a referendum to add new taxes are usually problematic whether or not this prevents the us government from introducing new (specific) taxes to align the incentives of market players with your the society (such as the way it is of negative externalities). With the small group of taxes allowed by Georgian legislation and exactly how wherein these are defined, you will find there’s real possibility that this EFA could steer clear of the introduction of potentially useful economic instruments (perhaps a tax per unit on pollutants released in an airplane or discharged inside of a river) or, as a minimum, delay their introduction and convey a non-negligible component unpredictability on the legislative process. Even the modification of existing taxes to adjust to emerging needs, regularly, could theoretically be challenged as “introduction of the new tax.” Also concerning