Tax System and Redistribution: the Spanish Fiscal Transition (1960-1990)

Abstract

This thesis analyses the Spanish tax system between 1960 and 1990, with special attention to the developments in progressivity, redistribution and inequality. It addresses the reforms that took place during the transition to democracy, providing a quantitative joint assessment which was missing in the literature.

Because of the long dictatorship suffered by the country between 1936/39 and 1976, Spain was a laggard in abandoning the traditional liberal forms of taxation in favour of 20th century tax ideas. Taxes were low, regressive and inefficient during these decades, and the welfare state seeds were kept underdeveloped. During the sixties, public finance scholars envisaged the introduction of the 'European' model, but such a reform could not make it through under Francoism.

As democracy returned, the new government soon passed several tax measures which meant to make the system progressive, efficient and able to raise higher revenue. This would bring the country into convergence with its European neighbours, allowing integration in the European Economic Community and the development of a modern welfare state. The main milestones were the introduction of a personal income tax (1979) and a value added tax (1986). But, during the following decades, social contributions kept being the single most important public revenue source, and high tax evasion persisted as one of the main unresolved problems signalled by experts. These elements sustain the initial hypothesis of a proportional or still regressive tax system after the reforms — which would contradict simple political economy models in the literature, were democratization redistributes political and economic power.

Our guiding research questions thus are: Did the tax system become (more) progressive? Did it reduce income inequality in the country? And what was the evolution of tax evasion and its incidence on different income levels?

The empirical work is mainly based on Household Budget Surveys, tax revenue data and statistics of tax burden distribution, which are critically treated and adjusted. Methodological innovations include a proposal for correction of biases in household survey data and an addition to Feldman and Slemrod (2007)'s method for estimating fraud in different income sources, by introducing a correction for sample selection. The calculations of the distribution of the tax burden underline the joint consideration of total taxation, including consumption taxes, which are often neglected in related work.

The main results of the thesis are a considerable persistence in inequality levels (contrary to theoretical expectations and the conclusions of previous literature), the negative impact of taxation on the income distribution still after the reforms (while funding progressive social expenditure), and the severe and regressive incidence of tax evasion and base voidening in the personal income tax. The levels of tax-and-transfer redistribution attained in Spain throughout this period did not converge to those of other western countries.

The author's interpretation concludes that demands for progressive taxation were constrained by both domestic political institutions –with a bias for representation of center-right interests–, and a new international political economy. The combination of sluggish growth, economic openness and neo-liberal theory made progressive taxes harder to defend and implement. This, in turn, limited the state’s redistributive capacity. To some extent, this story might also fit other countries in the European periphery, adding a new category to the international discussion on regressive taxation and welfare state development. Welfare state laggards initially resorted to similar strategies to those used earlier by the leaders. But lower revenue from personal taxes, higher levels of inequality, and slow growth impeded the establishment of highly redistributive tax-and-transfer systems.

La tesis analiza el sistema fiscal español entre los años 1960 y 1990, con especial atención a los aspectos de progresividad y redistribución, y a la evolución de la desigualdad en el periodo. Se estudian las reformas impositivas que tuvieron lugar durante la transición a la democracia, realizando una evaluación cuantitativa de sus efectos.

Debido a la larga dictadura sufrida por el país entre 1936/39 y 1976, España mantuvo durante casi todo el siglo XX las formas fiscales tradicionales del sistema liberal decimonónico: los impuestos eran bajos, regresivos e ineficientes, y las raíces del estado del bienestar se mantuvieron subdesarrolladas. Con el retorno de la democracia, pronto se impulsó una reforma con los objetivos de hacer el sistema progresivo, eficiente y capaz de generar mayor recaudación, cuyas novedades principales fueron la introducción del impuesto sobre la renta (1979) y del IVA (1986). Pero durante las siguientes décadas, las cotizaciones sociales siguieron siendo la fuente principal de ingresos públicos, y la alta evasión fiscal se mantuvo como uno de los grandes problemas no resueltos. ¿Cuál fue el efecto neto de todo ello?

La mayoría de la tesis es de carácter empírico, basándose en datos de Encuestas de Presupuestos Familiares y estadísticas de recaudación fiscal, que reciben un tratamiento crítico. Se realizan diversas propuestas metodológicas, para el ajuste por infra-declaración de los datos de encuesta y la estimación del fraude en base a declaraciones fiscales.

Los resultados principales son una considerable persistencia en los niveles de desigualdad, el mantenimiento de la regresividad del sistema impositivo, y el fuerte impacto negativo del fraude en el impuesto sobre la renta. Los niveles de redistribución total del sistema de impuestos y transferencias alcanzados en España durante el periodo no alcanzaron la convergencia con los de otros países occidentales. Se concluye que las demandas de imposición progresiva se vieron constreñidas tanto por las instituciones políticas nacionales como por un nuevo contexto internacional, donde la combinación de bajo crecimiento, apertura económica y teoría neo-liberal hizo los impuestos progresivos más difíciles de defender e implementar. Ello, a su vez, limitó la capacidad redistributiva del presupuesto.