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picture News March, 2 2021
image: Is Estonia decoupling from its Baltic neighbors? Is Estonia decoupling from its Baltic neighbors? - Decoupling in this sense refers to situations when countries have persistently different growth rates due to different capital formations, education levels, labour force participation, institutional set-up, political and economic stability, and openness for trade and investments, said Morten Hansen, Head of the Economics Department at the Stockholm School of Economics in Riga, at last weeks Business Seminar on the subject.

- Paul Krugman, the Nobel Memorial Prize Laureate in Economics 2008 has commented on Estonia's and Latvia's way out of the crisis, continued Morten Hansen; "They have made a desert - and called it successful adjustment". As for commenting on Latvia, he is even more harsh and writes "Riga Mortis; Meanwhile things could be worse. And in Latvia they are!

There are indeed differences between Estonia and Latvia, and Morten Hansen presented a small but illustrative example from the Estonian-Latvian border town Valga (Valka in Latvian):

- Estonia's Valga is bigger than Valka, and the 34-year old Estonian mayor of Valga has been inviting Latvians to change their legal declared address to Valga, where his city will get the tax revenue from the workers, and some Latvians are doing it. The benefit for them is that in Estonia the non-taxable minimum is higher, 144 euros compared with Latvia's 64 euros, the taxes are moderately lower, income tax at 21% vs. 25%, the social tax is slightly smaller at 33% vs. 35% and VAT is slightly lower at 20% vs. 22%. On top of this a lot of food items are cheaper in Valga than Valka; sugar, coffee and Laima (Latvian!) chocolate, and Cido juice is one third more expensive in Latvia's Valka.

- Estonia may not decouple from Latvia, but it has certainly positioned itself much, much better for future growth than its Baltic neighbor. When will Estonia overtake the Nordics in GDP per capita? About the time when Hell freezes over - but Latvia will do it much later...., concluded Morten Hansen.

On behalf of the SCCE Council, I would like to thank Morten Hansen, and his colleagues Karlis Kreslins and Anders Alexanderson from SSE - the Stockholm School of Economics in Riga, for a very interesting and high spirited Business Seminar.


Kristiina Sikk
Ombudsman SCCE

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· Estonia decoupling

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