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Modelling Personal Income Taxation in Spain:Revenue Elasticities and Regional Comparisons

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  • John Creedy
  • José Félix Sanz?Sanz

Abstract

This paper derives analytical expressions for the revenue elasticity of the Spanish personal income tax system, as applied to tax units and in aggregate. This is complicated by the schedular nature of the system, and the role of central and regional governments, along with the existence of a range of tax credits and eligible expenditures and deductions. Empirical estimates are obtained using a cros -sectional dataset which enables a number of important ancillary elasticities (relating to allowances and tax credits, and different income sources) to be estimated. It was found that there is considerable variation among tax units in the revenue elasticity, with highly (positively) skewed distributions. The nature of the distributions varies among regions of Spain, and the aggregate elasticities for each region were found to display some variation associated with income distribution differences. The national aggregate is found to be around 1.3. The paper also derives aggregate tax revenue as a function of characteristics of the distribution of taxable income in each region. This allows the sources of revenue differences among regions to be identified.

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Bibliographic Info

Paper provided by The University of Melbourne in its series Department of Economics - Working Papers Series with number 1097.

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Length: 61 pages
Date of creation: 2010
Date of revision:
Handle: RePEc:mlb:wpaper:1097

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  1. Hutton, John P & Lambert, Peter J, 1982. "Modelling the Effects of Income Growth and Discretionary Change on the Sensitivity of UK Income Tax Revenue," Economic Journal, Royal Economic Society, vol. 92(365), pages 145-55, March.
  2. Hutton, J P & Lambert, P J, 1980. "Evaluating Income Tax Revenue Elasticities," Economic Journal, Royal Economic Society, vol. 90(363), pages 901-06, December.
  3. Eleanor Craig & A. Heins, 1980. "The effect of tax elasticity on government spending," Public Choice, Springer, vol. 35(3), pages 267-275, January.
  4. Creedy, J. & Gemmell, N., 2001. "The Revenue Responsiveness of Income and Consumption Taxes in the UK," Department of Economics - Working Papers Series 814, The University of Melbourne.
  5. Dye, Richard F. & McGuire, Therese J., 1991. "Growth and Variability of State Individual Income and General Sales Taxes," National Tax Journal, National Tax Association, vol. 44(1), pages 55-66, March.
  6. Hutton, John P & Lambert, Peter J, 1983. "Inequality and Revenue Elasticity in Tax Reform," Scottish Journal of Political Economy, Scottish Economic Society, vol. 30(3), pages 221-34, November.
  7. Hutton, John P. & Lambert, Peter J., 1982. "Simulating the revenue elasticity of an individual income tax," Economics Letters, Elsevier, vol. 9(2), pages 175-179.
  8. Paul van den Noord, 2000. "The Size and Role of Automatic Fiscal Stabilizers in the 1990s and Beyond," OECD Economics Department Working Papers 230, OECD Publishing.
  9. John Creedy & Norman Gemmell, 2004. "The Built-In Flexibility Of Income And Consumption Taxes In New Zealand," Australian Economic Papers, Wiley Blackwell, vol. 43(4), pages 459-474, December.
  10. Pohjola, Matti, 1985. "Built-in Flexibility of Progressive Taxation and the Dynamics of Income: Stability, Cycles, or Chaos?," Public Finance = Finances publiques, , vol. 40(2), pages 263-73.
  11. Ram, Rati, 1991. "Elasticity of Individual Income Tax in the United States: Further Evidence from Cross-Section Data," National Tax Journal, National Tax Association, vol. 44(1), pages 93-99, March.
  12. Mabbett, Deborah, 2004. "Fiscal stabilisers in Europe: the macroeconomic impact of tax and benefit systems," EUROMOD Working Papers EM7/04, EUROMOD at the Institute for Social and Economic Research.
  13. Heinemann, Friedrich, 2000. "After the Death of Inflation: Will Fiscal Drag Survive?," ZEW Discussion Papers 00-19, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
  14. Koen Caminada & Kees Goudswaard, 1996. "Progression and revenue effects of income tax reform," International Tax and Public Finance, Springer, vol. 3(1), pages 57-66, January.
  15. Ozmucur, Suleyman, 1979. "More on Built-in Flexibility of Taxation," Public Finance = Finances publiques, , vol. 34(3), pages 443-51.
  16. Creedy, John & Gemmell, Norman, 2002. " The Built-In Flexibility of Income and Consumption Taxes," Journal of Economic Surveys, Wiley Blackwell, vol. 16(4), pages 509-32, September.
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