Publication: Macroeconomic and Distributive Effects of Increasing Taxes in Spain
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2022-11-09
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Springer Open
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Abstract
I assess the macroeconomic and redistributive effects of tax reforms aimed at increasing
tax revenue in Spain. To this end, I develop a theory of entrepreneurship that
mimics key facts on the wealth and income distribution in Spain. I find two reforms
that raise fiscal pressure in Spain to the average value among countries in the Euro
area. The first reform involves doubling the average effective tax rate on labor and
business income for all individuals whose income is above a threshold level. I find that
this reform reduces the inequality in after-tax income, wealth, and consumption. However,
it implies a substantial GDP reduction. The second reform increases the flat tax
rate on consumption by fifteen percentage points. While this reform does not reduce
long-run output, it does not decrease household inequality. All in all, the desirability
of the two reforms depends on the government’s preferences for reducing inequality
at the expense of aggregate output losses.
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Taxation, Fiscal pressure, Tax revenue, Entrepreneurship, Labor supply, Inequality
Bibliographic citation
Fuster, L. (2022). Macroeconomic and distributive effects of increasing taxes in Spain. SERIEs, 13 (4), pp. 613-648.