Instituto de Estudios Económicos
Libro blanco para la reforma fiscal en España

Spain: Proposals for a tax reform

The Institute of Economic Studies (IEE) has published the "White Paper for tax reform in Spain". According to it, an efficient and competitive reform of taxation should strengthen growth and employment by widening long-term tax bases and should not be designed solely for the purpose of increasing collection levels in the short term. The report makes numerous recommendations for the future reform proposed by the government and presents the “International Tax Competitiveness Index 2021” in which Spain ranks 30th out of the 37 countries analyzed (since ranking 26th in 2020).

Main conclusions of the report:

  • The rational of the reform cannot only be an increase in the tax collection to reduce the gap with the European Union (EU) average: According to the IEE, the difference in tax pressure (tax revenue/GDP) that Spain maintained with the EU average has been significantly shortened in recent years and it no longer justifies an in-depth reform of the tax system. According to Eurostat, in 2020 the tax pressure of the EU was 41.3% compared to 37.5% in Spain. In 2021, with official data, tax collection in Spain has increased by 15.1%, more than double the GDP growth, so the tax pressure in Spain will be at levels close to 41%, in line with the EU average.

  • The difference in tax pressure with the EU is not due to corporate taxation (15% in Spain adjusted for the shadow economy compared to 11.1% in the EU average), but to personal income tax and VAT.

  • According to the report, the only way to sustainably increase our tax collection and reduce the tax pressure differential (as small as it may be today) is to prioritize economic recovery and reduce our shadow economy.

  • The IEE estimates that a tax increase of up to 3 points of GDP would not solve the problem of fiscal sustainability in the medium term and could cause a contraction in activity of up to 5 points of GDP and a destruction of around one million of jobs.

  • An alternative to raising taxes would be to improve the efficiency of public spending, which in Spain is 14% lower than the OECD average, ranking 26th out of the 36 OECD countries.

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