Macroeconomic and Distributive Effects of Increasing Taxes in Spain Articles uri icon

publication date

  • November 2022

start page

  • 613

end page

  • 648


  • 4


  • 13

International Standard Serial Number (ISSN)

  • 1869-4187

Electronic International Standard Serial Number (EISSN)

  • 1869-4195


  • 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.


  • Economics


  • taxation; fiscal pressure; tax revenue; entrepreneurship; labor supply; inequality