Economic effects of a biofuel’s consumption tax exemption in the Spanish Personal Income Tax: a computable general equilibrium approach

Abstract

This paper simulates the effects on the economy of Spain that are produced by a new tax credit in the Income Tax, based on biofuels consumption. A computable general equilibrium model is employed as a modelling framework. Model parameters are obtained by calibration, using a social accounting matrix for Spain updated to the year 2000. According to results, a) the greater the reduction of the effective rate, the growth of domestic prices is higher, b) the greater the reduction of the effective rate, the levels of activity (in absolute value) are higher, c) the greater the reduction of the effective rate, higher unemployment, further reducing real GDP growth and higher disposable income, and, d) the greater the reduction of the effective rate, is the worst collection of all taxes.