How to increase tax revenue by 3 billion EUR without raising tax rates

  • Mortens Hansens
  • 17.07.2023
Ilustratīvs attēls

Ilustratīvs attēls.

OK, something of a teaser since, obviously, there is no easy way to do this. But if Latvia was more like Lithuania, this might have been possible.

Latvian economic development hasn’t been poor since independence – far from – but the star performer is Lithuania. In Figure 1 I show GDP per capita as a measure for income per person for the three Baltic countries and for Russia and Belarus in constant prices. The following can be observed or calculated:

It can also be seen that Latvia and Lithuania were basically neck-and-neck in 2006 but since then the afore-mentioned gap of 22.4% has developed. Average annual growth in income per person in Latvia since 2006 has been 2.1% but in Lithuania 3.3%, in both cases dragged down by the financial crisis of course, but a good example of the power of exponential growth. A mere 1.2 percentage point difference results in a significant 22.4% difference within 17 years. Should Latvia e.g. grow by two percentage points faster per year than Lithuania – which nothing indicates that it will – it would take 10 years to catch up.

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