How does fiscal reform affect the elasticity of income tax revenues? The case of Spain, 2003-2008
by Diego Martínez-López
International Journal of Public Policy (IJPP), Vol. 13, No. 6, 2017

Abstract: This paper estimates the extent to which an exogenous change in income affects income tax revenues. We focus on the case of Spain over the period 2003-2008, as the income tax experienced a substantial reform in 2007. Using both an analytical method and a numerical simulation, we find a significant increase in aggregate income tax elasticities from 1.4 for 2003-2006 to around 1.8 for 2007-2008. The sensitivity of results to the presence of housing tax credits, non-equiproportional variations in income, changes in income inequality and fiscal drag is also considered. Finally, some policy implications are drawn.

Online publication date: Mon, 06-Nov-2017

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