Income and wage inequality in democratic Portugal, 1974-2020. 2024. Fiscal Studies, forthcoming. Special Issue: IFS Deaton Review [portuguese]

Abstract: This paper investigates the evolution of income and wage inequality in Portugal from the 1974 democratic revolution to 2020, drawing on a series of administrative records, survey data, and aggregate statistics. Over this period, Portugal consistently ranked among the most unequal nations in the developed world. The transition from a deeply unequal dictatorial regime, in the wake of the 1974 revolution, brought about substantial redistribution. However, since the 1980s, income and wage inequality followed an arc-shaped trajectory. There was a sharp rise in inequality from the early 1980s to mid-1990s which, in just eight years, outpaced the United States' infamous growth in wage inequality of the last five decades. Then, stability at high levels until the mid-2000s. Finally, a sharp decline in inequality until 2020, which halved both the gender wage gap and the college wage premium. Changes related to the supply and demand for education/skills emerged as key drivers of inequality dynamics. Institutional and political forces were especially relevant in reducing inequality during the transition to democracy and, more recently, with the rising importance of the minimum wage and collective bargaining.

The minimum wage and the wage distribution in Portugal. Labour Economics. 2023. 

Abstract: Raising the minimum wage can reshape the wage distribution. Using a semiparametric approach, counterfactual decomposition methods, and an extremely rich administrative dataset of all employees in Portugal, this paper presents significant visual and quantitative evidence of how changes in the minimum wage shaped the country’s wage distribution over the last thirty years. For most of this period, the importance of the minimum wage was decreasing. However, a sustained rise since 2006 coincided with a decline in wage inequality that was comparable to the United States’ total increase in inequality over the last five decades. This remarkable compression of the wage distribution can be fully accounted for by the rising minimum wage. While a minority of workers were directly covered by the minimum wage, spillover effects were observed up to the 54th percentile of the wage distribution, explaining more than half of its inequality-reducing effect. Portugal experienced modest wage growth between 2006 and 2019 but 38% of it can be associated to the increasing minimum wage.

The Western Exception: Declining Inequality and Persistent Political Cleavages in Portugal. 2024.

Abstract: This paper studies the Portuguese exception to the transformation of political conflict in Western countries. Portugal presents a unique case where traditional left-right divides have remained stable relative to other Western democracies. Exploring new local-level data, I find a remarkable persistence of income, ownership, education, and professional political cleavages, even after the recent emergence of the nationalist right. Contrary to other countries, the traditional left-wing parties continue to find strong support from the least educated and lower income working class communities, while the traditional right attracts more educated and higher income voters. It is argued that the Portuguese left's success in demonstrating effective predistributive education and labor policies has preserved its historic working class voter base, while the traditional right has retained the support from upper middle class voters with 'meritocratic' preferences. The nationalist right, on the other hand, was exceptionally successful in the very richest but not so educated communities. Its rise could be seen as a backlash from historically more privileged groups who have since seen the catching-up of an increasingly educated upper middle class, and an increasingly well-off working class, erode their previously unchallenged social status. Overall, these findings indicate that political parties' ability to carry out policies and reforms that effectively address long-term inequality can be a key factor in maintaining resilient voter bases.

Mapping the global geography of shell companies (with G. Aliprandi and T. Busschots). EU Tax Observatory. 2023.

Abstract: This note examines the global prevalence and distribution of shell companies, which are often used for illicit financial activities like tax evasion. Using business registry data for over 200 jurisdictions, including individual US states, we construct an indicator of shell company prevalence based on the number of registered companies per capita. We find that known tax havens like the British Virgin Islands and the Cayman Islands have extremely high rates of company presence per adult. Zooming in on Europe reveals Estonia as a lesser-known host for shell companies, besides flagging known conduit countries like Luxembourg and Cyprus. A unique decomposition of US states also shows Delaware and Wyoming are potentially hosting a large number of shell companies. Indicative for the role of shell companies in international tax evasion, our shell company prevalence indicator correlates with jurisdiction characteristics catering tax evasion, such as low corporate tax rate and aggressive tax treaties.

A Modern Excess Profit Tax (with M. François, B. Planterose and G. Zucman). EU Tax Observatory. 2022.

Abstract: This paper presents a new way to tax excess profits. We propose to tax the rise in the stock market capitalization of companies that benefit from extraordinary circumstances, such as energy firms following the invasion of Ukraine in February 2022. Targeting the rise in stock market capitalization (which is easily observable) makes the tax much harder to avoid than standard excess profit taxes, and allows to capture rents irrespective of where multinational companies book their profits. We apply this proposal to energy companies that are headquartered or have sales in the European Union. We estimate that taxing the January 2022 to September 2022 valuation gains of energy firms at a rate of 33% would generate around €80 billion in revenue (0.4% of GDP) for the European Union. We discuss implementation practicalities  and compare our proposals to other plans made to tax excess profits.