November 22, 2002

The move to lower tax rates was a shrewd political maneuver aimed at re-establishing Schroeder’s credibility with the business community and disgruntled foreign investors. At the time, we argued that while bullish in the long term, the Schroeder tax rate cut would engender some transition problems. We believed that the program would cause some unnecessary pain during the transition and that it would test the political will of the Schroeder government. Time has passed, Schroeder won a second term and we have the verdict: He failed the political will test.

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