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Simplifying the personal income tax system: lessons from the 1998 Spanish reform


  • Horacio Levy
  • Magda Mercador-Prats


Governments often try to reduce the complexity of personal income tax systems by decreasing the number of tax filings. The 1998 reform of the Spanish income tax system has followed this approach by adjusting withholding on earned income to the income tax liability. In this paper, we assess to what extent the reform has fulfilled its purposes, making use of a micro-simulation tax- benefit model for Spain, ESPASIM. The number of individuals exempt from filing a tax return has been reduced to around half of the total number of taxpayers. However, the quantity of tax returns sent to the tax administration has not changed so much because the new withholding system adjusts taxes for only 29 per cent of those exempt. Moreover, the new system increases the overall excess of tax withholding by 1.5 billion euro. We also study alternative reforms that could achieve better results than the one implemented.

Suggested Citation

  • Horacio Levy & Magda Mercador-Prats, 2002. "Simplifying the personal income tax system: lessons from the 1998 Spanish reform," Fiscal Studies, Institute for Fiscal Studies, vol. 23(3), pages 419-443, September.
  • Handle: RePEc:ifs:fistud:v:23:y:2002:i:3:p:419-443

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    References listed on IDEAS

    1. Chisari, Omar & Estache, Antonio & Romero, Carlos, 1999. "Winners and Losers from the Privatization and Regulation of Utilities: Lessons from a General Equilibrium Model of Argentina," World Bank Economic Review, World Bank Group, vol. 13(2), pages 357-378, May.
    2. Antonio Estache & Gines De Rus, 2000. "Privatization and Regulation of Transport Infrastructure : Guidelines for Policymakers and Regulators," World Bank Publications, The World Bank, number 15199.
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      JEL classification:

      • H24 - Public Economics - - Taxation, Subsidies, and Revenue - - - Personal Income and Other Nonbusiness Taxes and Subsidies
      • K34 - Law and Economics - - Other Substantive Areas of Law - - - Tax Law


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