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The elasticity of taxable income in Spain: 1999–2014

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  • Miguel Almunia

    (Colegio Universitario de Estudios Financieros (CUNEF)
    Centre for Economic Policy Research (CEPR)
    Centre for Comparative Advantage in the Global Economy (CAGE)
    Oxford Centre for Business Taxation)

  • David Lopez-Rodriguez

    (Banco de España)

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.

Suggested Citation

  • Miguel Almunia & David Lopez-Rodriguez, 2019. "The elasticity of taxable income in Spain: 1999–2014," SERIEs: Journal of the Spanish Economic Association, Springer;Spanish Economic Association, vol. 10(3), pages 281-320, November.
    • Handle: RePEc:spr:series:v:10:y:2019:i:3:d:10.1007_s13209-019-00208-x
    DOI: 10.1007/s13209-019-00208-x
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    Cited by:

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    2. Ana Gamarra & José Félix Sanz-Sanz & María Arrazola, 2023. "The individual Laffer curve: evidence from the Spanish income tax," Melbourne Institute Working Paper Series wp2023n05, Melbourne Institute of Applied Economic and Social Research, The University of Melbourne.
    3. Juan Ayuso & Juan F. Jimeno & Ernesto Villanueva, 2019. "The effects of the introduction of tax incentives on retirement saving," SERIEs: Journal of the Spanish Economic Association, Springer;Spanish Economic Association, vol. 10(3), pages 211-249, November.
    4. Ayaz, Mehmet & Fricke, Lea & Fuest, Clemens & Sachs, Dominik, 2023. "Who should bear the burden of COVID-19 related fiscal pressure? An optimal income taxation perspective," European Economic Review, Elsevier, vol. 153(C).

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    More about this item

    Keywords

    Elasticity of taxable income; ETI; Personal income tax; Mean reversion; Tax deductions; Spain;
    All these keywords.

    JEL classification:

    • H24 - Public Economics - - Taxation, Subsidies, and Revenue - - - Personal Income and Other Nonbusiness Taxes and Subsidies
    • H31 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Household
    • D63 - Microeconomics - - Welfare Economics - - - Equity, Justice, Inequality, and Other Normative Criteria and Measurement

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