Tax reforms in Spain: efficiency levels and distributional patterns

This paper approximates the efficiency levels of the most relevant tax categories and their distributional patterns for a European country considering Spain as an illustrative example. This is done computing the ‘marginal’ excess burden of these taxes, taking into account the structure of the Spanish tax system before and after the major tax reforms undertaken since 2010. In doing so we use a static applied general equilibrium model, which features heterogeneous households classified according to their taxable income. In addition, and in identical terms, another alternative tax reform is evaluated: a flat value-added tax system and a reduction in employers’ social security contributions. Our results indicate that the alternative tax reform would have slightly improved the degree of efficiency of these taxes while implying a lower negative impact on aggregate income. Regarding distributive effects, we do not find significant differences between the actual and the alternative tax policies.