The Spanish personal income tax: facts and parametric estimates

Abstract

In this paper, we use administrative data on tax returns to characterize the distributions of before-and after-tax income, tax liabilities and tax credits in Spain for individuals and households. We use the most recent available data, 2015 for individuals and 2013 for households, but also discuss how the income distribution and taxes have changed since 2002. We also estimate effective tax functions that capture the underlying heterogeneity of the data in a parsimonious way. These parametric functions can be used to calculate after-tax incomes in surveys where this information is not directly available, and can also be used in quantitative work in macroeconomics and public finance. Keywords Personal income tax • Tax functions • Income distribution JEL Classification E62 • H24 • H31 We thank the editor, two anonymous referees, and seminar participants at Banco de España, the Workshop on Fiscal Policy and Microsimulation (Valencia), the Workshop on Microsimulation and Fiscal Policy (Banca d'Italia), the 43rd Simposio de la Asociación Española de Economía-Spanish Economic Association (SAEe, Madrid), and the Conference SERIEs-Banco de España "Taxes and Transfers" for comments and discussions. The views expressed in this paper are those of the authors and do not necessarily coincide with the views of the Banco de España or the Eurosystem. Guner acknowledges financial support from the Spanish Ministry of Economy and Competitiveness, Grant ECO2014-54401-P.

Reforming the individual income tax in Spain

“…We also present estimates of effective tax functions that describe taxes paid on labor and capital income in a parsimonious way, and an effective tax-credit function. A more extended discussion can be found in García-Miralles et al (2019). The Spanish tax system raises revenue from taxes on the income, consumption and wealth of individuals, and on profits of firms.…”

“…Notes: This figure plots the estimation of the three parametric tax functions of the Spanish personal income tax, namely the average general tax rate, which is applied to labor income in the model (panel A), the average savings tax rate, which is applied to capital income (panel B) and tax credits as a fraction of gross income (panel C). The parametric estimates of each function are borrowed from García-Miralles et al (2019). Each data point corresponds to the mean average tax rate (panels A and B) or tax credit (panel C) of taxpayers whose income is larger than or equal to the point in the x-axis and less than the next point.…”

“…The parameter values of the model economy with a cap on social contributions are the same as of the benchmark economy, except for the payroll tax rate, τ ss , which now takes the value of 0.33, and the top and bottom values of the permanent shock, SERIEs This table shows the distribution of income and consumption tax payments in the data and the implied distribution from a model economy with a cap on social security contributions. The income tax data are taken from García-Miralles et al (2019), see Table 7 therein, whereas the consumption tax burden is obtained from a simulation run on the BdE VAT Microsimulation Model, see Bover et al (2017). In the model, income tax liabilities are the result of adding up the taxes on labor and capital, and subtracting the tax credits Appendix D: Derivation of Equation 10The total taxes on labor income are given by…”

“…When τ > 0, individuals with higher incomes face a higher average tax rate. For the Spanish economy, λ = 0.8919 and τ = 0.1581 provide a good description of labor income taxes (García-Miralles et al 2019). With these parameters, individuals with mean labor income (e22,805 in 2015) face an average tax rate of 10.81% (1 − λ).…”

The elasticity of taxable income in Spain: 1999–2014

“…3.2 and Online Appendix A for more details.6 Apart from these, there is a broad set of smaller (in revenue terms) tax credits for house renting, double taxation, business investment and charitable donations. A complementary discussion of the structure of the Spanish PIT and its main components can be found inGarcía-Miralles et al (2019).7 For historical reasons, the autonomous communities of the Basque Country and Navarre (which account for 6% of Spain's population) have the power to design, collect and enforce their own PIT. For this reason, they are not included in this study.…”