Spain: Selected Issues

This Selected Issues paper focuses on dissecting Spain’s soaring tax revenues and their implications for projections. This paper combines an econometric approach based on historical time series with a more detailed analysis of relevant developments for each tax over the post-Coronavirus disease period. The analysis finds that several factors contributed to the 2020–2023 revenue boom, including large employment gains and the so-called fiscal drag, among others. The revenue boom closed almost half of Spain’s revenues-to-gross domestic product gap relative to peer countries—from 7.1 percentage points in 2019 to 4 in 2023. Given the need for sizeable and sustained fiscal consolidation to rebuild fiscal buffers and set debt on a downward trajectory, continued efforts to boost revenues will be needed. In particular, reforms of the tax system in areas not considered in this paper, such as environmental taxation, could raise additional resources while addressing externalities and supporting the green transition.