On the distributive and incentive effects of the Spanish income tax: A comparison of 1980 and 1994

This paper examines the distributive and incentive effects of reforms to personal income tax that have been undertaken in Spain since the 1978 act. It analyzes the effects that would have been observed if no change other than that purely due to modifications to income tax had taken place. This is done by simulating the impact of the income tax system in two years (1980 and 1994) over a constant population - that of the Spanish household survey 1980-81. The 'distributive' effect is assessed through the average tax burden by deciles of household post-tax income, and the 'incentive effect' is evaluated by means of the distribution of households by intervals of effective marginal tax rate. The results indicate that in a world in which income tax obligations were fulfilled, the 1994 system (uprated according to the consumer price index to 1980 levels) would have been more progressive than than that of 1980. This increase in progressivity would have been accompanied by a very substantial increase in the number of households subject to a higher marginal tax rate, and by a rise in tax collection. © 1997 Elsevier Science B.V.