Optimal progressivity of personal income tax: a general equilibrium evaluation for Spain

Serrano-Puente, Darío

doi:10.1007/s13209-020-00226-0

Cited by 8 publications

(1 citation statement)

References 48 publications

(59 reference statements)

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“…After Diamond and Saez (2011), who suggest that the optimal marginal tax rate on the top 1% of earners should be 73%, several papers focused on the optimal taxes on top earners, e.g. İmrohoroglu et al (2018), Kindermann and Krueger (2018) Heathcote, Storesletten, and Violante (2017), Storesletten (2019), andSerrano-Puente (2020) study optimal progressivity with the same tax function used in this study and look for the welfaremaximizing level of τ . Among these, in a paper simultaneous to ours, Serrano-Puente (2020) studies the optimal progressivity of personal income taxes in Spain.…”

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confidence: 99%

Reforming the Individual Income Tax in Spain

2021

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We study how much revenue can be generated by more progressive personal income taxes in Spain. We build a life-cycle economy with uninsurable labor productivity risk and endogenous labor supply. Individuals face progressive taxes on labor and capital incomes and proportional taxes that capture social security, corporate income, and consumption taxes. An increase (decrease) in labor income taxes for individuals who earn more (less) than the mean labor income generates a small additional revenue. The revenue from labor income taxes is maximized at an e ective marginal tax rate of 51.6% (38.9%) for the richest 1% (5%) of individuals, versus 46.3% (34.7%) in the benchmark economy. The additional revenue from labor income taxes is only 0.82% higher, while the total tax revenue declines by 1.55%. The total tax revenue is higher if marginal taxes are raised only for the top earners. The increase, however, must be substantial and cover a large segment of top earners. The new tax collection from a 3 percentage points increase on the top 1% is just 0.09%. A 10 percentage points increase on the top 10% of earners (those who earn more than e41,699) raises the total taxes by 2.81%.

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Section: Figurementioning

confidence: 99%

Reforming the Individual Income Tax in Spain

2021

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Reforming the individual income tax in Spain

Guner

Lopez-Segovia

Ramos

2020

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Can the Spanish government generate more tax revenue by making personal income taxes more progressive? To answer this question, we build a life-cycle economy with uninsurable labor productivity risk and endogenous labor supply. Individuals face progressive taxes on labor and capital incomes and proportional taxes that capture social security, corporate income, and consumption taxes. Our answer is yes, but not much. A reform that increases labor income taxes for individuals who earn more than the mean labor income and reduces taxes for those who earn less than the mean labor income generates a small additional revenue. The revenue from labor income taxes is maximized at an effective marginal tax rate of 51.6% (38.9%) for the richest 1% (5%) of individuals, versus 46.3% (34.7%) in the benchmark economy. The increase in revenue from labor income taxes is only 0.82%, while the total tax revenue declines by 1.55%. The higher progressivity is associated with lower aggregate labor supply and capital. As a result, the government collects higher taxes from a smaller economy. The total tax revenue is higher if marginal taxes are raised only for the top earners. The increase, however, must be substantial and cover a large segment of top earners. The rise in tax collection from a 3 percentage points increase on the top 1% is just 0.09%. A 10 percentage points increase on the top 10% of earners (those who earn more than €41,699) raises total tax revenue by 2.81%.

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Macroeconomic and distributive effects of increasing taxes in Spain

Fuster

2022

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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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Optimal progressivity of personal income tax: a general equilibrium evaluation for Spain

Cited by 8 publications

References 48 publications

Reforming the Individual Income Tax in Spain

Reforming the Individual Income Tax in Spain

Reforming the individual income tax in Spain

Macroeconomic and distributive effects of increasing taxes in Spain

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