ECB's Gonzalez-Paramo promotes lower taxes

'Over the longer term and as a key ingredient of a broader set of supply-side policies such as those embodied in the EUs Lisbon agenda, tax reforms could have a bearing on monetary policy,' Gonzalez-Paramo said in the speech.

He said a reduction in marginal income tax rates would boost employment and reduce inflation pressures.

'During an economic upturn, such a reform would help to reduce inflationary pressures stemming from the labour market. All other things equal, this could imply less of a need for monetary policy tightening,' he said.

But he said any such tax reforms have to be timed correctly.

'There may be cases where even if a tax reform were to be desirable from a long-term perspective... if not timed properly it could still have a detrimental pro-cyclical effect,' he said.

Gonzalez-Paramo said the overall speed of tax reforms in the euro zone is still slow, and in many cases countries have reduced tax revenue without a matching reduction in expenditure.

'If tax cuts are to be sustainable and to contribute to raising growth in the long run, they need to be financed by equivalent reductions on the expenditure side,' he said.

Click here to read the speech "Taxation, tax reform and monetary policy" on the ECB's website