Ministry of Finance – Portugal
Growth-enhancing reforms - a model based
exercise
2nd Lisbon Conference on Structural Reforms
6 July 2017
Ana Filipa Fernandes, GPEARI – Ministry of Finance
Ana Fontoura Gouveia, GPEARI – Ministry of Finance / Nova SBE
The views expressed are those of the authors and do not necessarily reflect
the views of GPEARI
Ministry of Finance – Portugal
1. Research Question
2. QUEST Model
3. Main Results
4. Conclusions
1. Research Question
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1. Research Question
What is the impact on potential output of the reforms outlined in the 2017 National Reforms Programme?
2. QUEST Model
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2. QUEST Model
European Commission’s QUEST III with semi endogenous growth
Households Intermediate goods sector
Final goods sector R&D sector
Fiscal authority Monetary authority
Low skilled Medium skilled
High skilled
Patents
Impact on potential growth (and sub-components)
Deviations from a “no-reform”
baseline Outcome
Mark-ups Entry costs
R&D subsidies Lump-sump tax Risk premium
…
3. Main Results
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3. Main Results
EducationJudicial
systemInnovation Financing
Red tape
costs
Labour
market
t+10 years 2.7 0.0 0.2 2.0 0.0 2.8
t+20 years 3.0 0.0 0.3 3.2 0.0 3.2
t+50 years 3.4 0.1 0.4 4.7 0.0 3.5
t+10 years 0.5 0.0 0.0 0.6 0.0 2.4
t+20 years 0.5 0.0 0.0 0.6 0.0 2.4
t+50 years 0.6 0.0 0.0 0.6 0.0 2.4
Employment
Effects
Policy Area
GDP
EducationJudicial
systemInnovation Financing
Red tape
costs
Labour
market
t+10 years 2.7 0.0 0.2 2.0 0.0 2.8
t+20 years 3.0 0.0 0.3 3.2 0.0 3.2
t+50 years 3.4 0.1 0.4 4.7 0.0 3.5
t+10 years 0.5 0.0 0.0 0.6 0.0 2.4
t+20 years 0.5 0.0 0.0 0.6 0.0 2.4
t+50 years 0.6 0.0 0.0 0.6 0.0 2.4
Effects
Policy Area
GDP
Employment
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3. Main Results
Education
Source: Authors own computations using QUEST model
Output effects of innovation related measures, broken down by capital, labour and TFP
contributions Diagnosis: Gap vis-à-vis EU decreased
significantly but is still high
Goal of reforms: at least half of the population with secondary education
Modelling: low-skill workers -> medium-skill
workers
Measures: generalisation of secondary education (diversification of training);
education system modernisation; National Programme for the Promotion of
Attainment; generalisation of pre-school; gradual gratuity of the schoolbooks, among
others.
Effects 10 years 50 years
GDP 2.7 3.4
Employment 0.5 0.6
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3. Main Results
Innovation
Source: Authors own computations using QUEST model
Output effects of innovation related measures, broken down by capital, labour and TFP
contributions Diagnosis: High-performing country in a number of important innovation related variables but low
levels of employment in knowledge-intensive activities and scope for improving the share of
SMEs engaging in innovative activities.
Goal of reforms: increase the number of doctorates contracted
Modelling: R&D wage subsidy -> high-skilled
workers
Measures: Stimulus to higher education success and scientific employment; Interface Programme; collaboration between firms and universities and
strengthen the capacity of research centres; scientific and technological infrastructure re-
equipment; CapaCITar Programme.
Effects 10 years 50 years
GDP 0.2 0.4
Employment 0.0 0.0
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3. Main Results
Labour market
Source: Authors own computations using QUEST model
Output effects of labour market related measures, broken down by capital, labour and TFP
contributions
Diagnosis: Significant reduction in unemployment rates, but still at high level
specially for the youth and long-term unemployed.
Goal of reforms: increase employment
Modelling: participation rate (low and
medium skilled) -> employment
Measures: Contrato Emprego and professional internships.
Effects 10 years 50 years
GDP 2.8 3.5
Employment 2.4 2.4
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3. Main Results
Financing
Source: Authors own computations using QUEST model
Output effects of financing related measures, broken down by capital, labour and TFP
contributions
Diagnosis: Need to boost investment, given the legacy of the crisis.
Goal of reforms: boost investment
Modelling: risk-premium on tangible investment -> increase investment
Measures: investment through National
Budget, Portugal 2020, Plano Juncker, and other sources of funding. Effects 10 years 50 years
GDP 2.0 4.7
Employment 0.6 0.6
4. Conclusions
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4. Conclusions
A word of caution: • Model as a simplification of reality
• Not all reforms can be modeled due to model limitation and availability of micro estimates -> partial results
• Uncertainties on micro estimates and shocks estimates • Ceteris paribus analysis notwithstanding reforms
implemented as a bundle (final outcome higher/lower than the sum-up of estimated effects)
Overall effects • Significant gains of reforms: 0.7pp per year in 10 years
• Larger impact on policy areas with larger gaps
Ministry of Finance – Portugal
Ana Filipa Fernandes, GPEARI – Ministry of Finance
2nd Lisbon Conference on Structural Reforms
6 July 2017
Thank you.
