The elasticity of taxable income in Spain: 1999–2014

Abstract

We study how taxable income responds to changes in marginal tax rates, using as a main source of identifying variation three large reforms to the Spanish personal income tax implemented in the period 1999-2014. The most reliable estimates of the elasticity of taxable income (ETI) with respect to the net-of-tax rate for this period are between 0.45 and 0.64. The ETI is about three times larger for self-employed taxpayers than for employees and larger for business income than for labor and capital income. The elasticity of broad income is smaller, between 0.10 and 0.24, while the elasticity of some tax deductions such as the one for private pension contributions exceeds one. Our estimates are similar across a variety of estimation methods and sample restrictions and also robust to potential biases created by mean reversion and heterogeneous income trends. We thank the Instituto de Estudios Fiscales (IEF) for providing access to the administrative tax-return data. Any views expressed in this paper are only those of the authors and should not be attributed to the Banco de España or the Eurosystem. The authors declare that they have no competing interests, financial or non-financial, in relation to the results presented in this paper.

Who Should Bear the Burden of COVID-19 Related Fiscal Pressure? An Optimal Income Taxation Perspective

“…For France, we use the average across OECD countries. For the elasticity, we use the estimate of Doerrenberg, Peichl, and Siegloch (2017) for Germany, Brewer, Saez, and Shephard (2010) for the UK, Almunia and Lopez-Rodriguez (2019) for Spain, Lehmann, Marical, and Rioux (2013) for France and the approximate midpoint of estimated elasticities as reported by Saez, Slemrod, and Giertz (2012) for Italy. The values of the lump-sum transfer match the average minimum income protection from 2017 Social Assistance and Minimum Income Protection Interim Dataset and are converted into EUR.…”

“…For detailed information about the tax-benefit calculator EUROMOD, seeSutherland and Figari (2013). 7 For a detailed description of the simulation of effective marginal tax rates in EUROMOD, seeJara and Tumino (2013).8 We use the estimate ofDoerrenberg, Peichl, and Siegloch (2017) for Germany,Brewer, Saez, and Shephard (2010) for the UK,Almunia and Lopez-Rodriguez (2019) for Spain andLehmann, Marical, and Rioux (2013) for France. To the best of our knowledge, there exists no empirical evidence on the elasticity of taxable income for Italy.…”

Spain

“…In the case of Spain, for instance,Almunia and Lopez-Rodriguez (2019) study the elasticity of households' taxable income in response to three reforms of the PIT structure over1994-2014. ©International Monetary Fund.…”