Taxing Wealth or Capital Income? The Impact of Political Ideology on Property Tax Policy in Spain: A Quasi-Experimental Study

Although an extensive theoretical literature debates the advantages of taxing wealth stocks versus capital income, the role of partisan effects in shaping these fiscal tools remains under-explored. This study investigates the party control effect on local property taxation in Spain, comparing a recurrent tax on property wealth with a capital gains tax on property transfers, a non-mandatory tax. Employing a regression discontinuity design on close municipal elections from 2011 to 2015, a period marked by the aftermath of the 2008 financial crisis, we isolate the impact of left-wing government control. We find that left-wing governments increase effective property tax rates roughly twice the average increase under right-wing administrations, an effect substantially amplified in multi-term governments (mayors with previous experience) and unaffected by coalition status. For the capital gains tax, ideology mainly affects the adoption decision: left-wing governments are about 5 percent more likely to implement the tax, and this effect is stronger in less wealthy municipalities. However, once the tax is in place, the partisan effect plays no systematic role in determining the tax rate. Thus, despite a political discourse that does not map neatly onto the wealth-versus-capital-income distinction, actual partisan behaviour aligns broadly with theoretical expectations. The post-crisis context amplified ideological differences in property tax responses.