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 party ideology in shaping these fiscal tools remains under-explored. This study investigates the causal effect of political ideology 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. By employing a regression discontinuity design on close-election outcomes from 2011 to 2015, we isolate the impact of left-wing government control. We find that left-wing governments increase effective property tax rates by an amount approximately 30% greater than right-wing governments. For the capital gains tax, however, ideology primarily influences the adoption decision (left-wing governments are 9% more likely to implement it) but not the level at which it is set, which is driven instead by technical and market factors. These findings demonstrate that the influence of political ideology is not uniform across property tax mechanisms. It strongly affects recurrent wealth taxes but plays a more limited role in transaction-based capital gains taxes after their initial adoption.