The redistributive effects of changes in the Personal Income Tax during the Great Recession in Spain

Abstract

In recent years, a variety of tax reforms aiming for fiscal consolidation have taken place in Spain. This has been regarded as crucial when the economic crisis is strongly hitting the Spanish labour market and the unemployment rate has boosted largely over 17 percent since 2009. In fact, public expenditures in the last three years have grown strongly due to the expenses on unemployment benefits and other welfare state protection programs. Regarding Personal Income Tax (PIT) most changes introduced have generally implied more tax brackets and larger tax rates for medium to high incomes. So far, however, little is known about the impact these changes may have had on the income distribution. Making use of the taxbenefit model for the European Union – EUROMOD – this paper undertakes an evaluation of the redistributive effects of the Personal Income Tax (PIT) on the distribution of personal disposable income in Spain in the period 2005-2011 and evaluates the recent 2012 PIT reform.