Assessing alternative reforms to the Spanish Income Tax: a static micro-simulation approach

• Autores: Magda Mercader Prats, Horacio Levy
• Localización: VI Encuentro de Economía Pública. El gasto social y su financiación: Oviedo. 4-6- de febrero de 1999, 1999, pág. 66
• Idioma: inglés
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• Resumen

  • Making use of ESPASIM, a static micro-simulation model for Spain, this paper explores the impact of alternative reforms to the Spanish system of income taxation. It first studies the effects of what is called the government�s proposal (GP) of reform which contains the main elements of an income tax proposal which is now about to receive the definite approval of the Spanish Senate. Key elements of this proposal are: A general reduction of the fiscal burden � by cutting down the number of bands and lowering marginal tax rates, mainly at the top income ranges � and the substititution of the two most important tax credits -those going to families with dependents and the earners tax credit- by a system of tax allowances. The GP implies important cuts in tax collection which benefit most at high income levels in absolute terms but do not change much overall relative inequality. Effective marginal tax rates are generally reduced.

    Secondly, it explores two alternative income tax reform proposals: i) The modified government proposal which borrows many of the GP features but keeps the actual system of tax credits, making them refundable to all tax payers. This proposal shows a greater redistributive impact than the GP but still prevents the bottom end of the income scale to benefit from any tax cut. ii) The convertible tax credit proposal which introduces main simplifications into the existing system � abolishing joint taxation and unifying the two different levels of personal allowances and exemptions � and establishes a system of convertible tax credits, not only has a greater redistributive impact but also allows the integration of the income tax reform debate into a wider taxbenefit perspective.