Keeping track of global trade in real time

Abstract

for their helpful comments. We are very grateful to Alberto F. Borrallo and Marina Conesa for their excellent research assistance.The views of this paper are those of the authors and do not represent the view of the OECD, the Banco de España, the European Central Bank, or the Eurosystem. No part of our compensation was, is or will be directly or indirectly related to the specific views expressed in this paper.

Optimal Progressivity of Personal Income Tax: A General Equilibrium Evaluation for Spain

“…When τ < 0, the tax system is regressive (households with a non-negative income would obtain a net transfer from the government). This specification has been already used by García-Miralles et al (2019) to replicate the Spanish income tax system, and they show that the HSV specification matches almost exactly the effective average tax rates for the Spanish households.…”

“…The target value for the capital to output ratio, K/Y , is 4.25 [T16-MSM], the capital income share, α, is 0.48 [T8-DI], and the target value for the investment to output ratio, I/Y , is 21.94% [T9-DI]. The target value for the capital to output ratio is obtained by dividing 247,523e , which was the average household net wealth in Spain in the calibration reference year according to the Bank of Spain (2019,2017), by 58,230e , which was per household Gross Domestic Product in Spain in the calibration reference year according to Eurostat (2020b,c) and the Spanish National Institute of Statistics ( 2016) (INE, its acronym in Spanish). 12 The parameter controlling for the subjective time discount factor, β, is calibrated to match this capital to output ratio.…”

“…The value for the labor income share was 0.52 in Spain in the calibration 12 The average household net wealth, 247,523e , is calculated using linear interpolation techniques. The Survey of Household Finances conducted by the Bank of Spain (2019,2017) provides the average household net wealth for two particular waves, 2014 and 2017, at current prices. Using annual price changes from the World Bank (2020a), these data can be expressed in e of 2015.…”

“…The personal income tax function of the model economy is aimed to mimic the progressivity of the Spanish effective personal income taxes. This objective is achieved by shaping the tax function with an augmented version of the HSV specification, as it was similarly done by García-Miralles et al (2019). The specification used in the present analysis was introduced in equation 4.…”

“…Moreover, Bakis et al (2015), Heathcote et al (2017), and Conesa and Krueger (2006) provide an assessment of the optimal progressivity of personal income tax and how redistributive the government's fiscal policy should be. Finally, Díaz-Giménez and Pijoan-Mas (2019) evaluate the gains that a progressive consumption tax could have with the same modeling framework that is used in the present analysis. Hence, due to the topic and the underlying methodology, the work contained herein would contribute to this body of literature.…”