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Title: The Elasticity of Taxable Income in Spain: 1999-2014

Author(s): Miguel Almunia and David Lopez-Rodriguez

Publication Date: July 2019

Keyword(s): Elasticity of taxable income, ETI, mean reversion, Personal income tax, Spain and tax deductions

Programme Area(s): Public Economics

Abstract: We study how taxable income responds to changes in marginal tax rates, using as a main source of identifying variation three large reforms to the Spanish personal income tax implemented in the period 1999-2014. The most reliable estimates of the elasticity of taxable income (ETI) with respect to the net-of-tax rate for this period are between 0.45 and 0.64. The ETI is about three times larger for self-employed taxpayers than for employees, and larger for business income than for labor and capital income. The elasticity of broad income (EBI) is smaller, between 0.10 and 0.24, while the elasticity of some tax deductions such as the one for private pension contributions exceeds one. Our estimates are similar across a variety of estimation methods and sample restrictions, and also robust to potential biases created by mean reversion and heterogeneous income trends.

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Bibliographic Reference

Almunia, M and Lopez-Rodriguez, D. 2019. 'The Elasticity of Taxable Income in Spain: 1999-2014'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=13876