Tax policies in times of recession

The recent history of Europe is replete with cases of financial crises, both of local (Norway, 1987; Finland and Sweden, 1991) and global nature (in 2008 European financial markets suffered the contagion from the financial crisis that had burst in the US). These serious financial markets turmoil always produced strong constraints to the liquidity of the economic system and triggered deep economic recessions. Although there is general agreement that these economic crises were not generated by tax related factors, some distortions or non-neutralities within the tax system may have exacerbated the spam and magnitude of the economic crisis. This paper analyzes the cases of post-crises tax reforms implemented in North European countries in late 1980s – early 1990s and in (many of) the 27 EU countries in 2008-2010. For the three North European countries, the tax reforms are evaluated as far as their consistency with objectives of economic recovery and inequality reduction is concerned. Such an evaluation is not yet possible for the most recent economic downturn, therefore the tax reforms implemented by EU countries are described and their consistency with economic recovery and long-term growth is discussed.