Is Spain a fiscal hell?

The short answer is no. Despite what you have read or heard these days in reference to various reports, you do not live in fiscal hell. It does so in a country with tax parameters, in particular tax rates, similar to the European Union (EU) average. In fact, traditionally we have collected comparatively less than the others, even correcting for the level of income or gross domestic product (GDP). Fundamentally because in Spain we are very inclined to grant all kinds of tax benefits; and because fraud and tax avoidance would be above average.

The pandemic has come to alter the figures somewhat. Although tax collection over GDP is still below the simple average for EU countries, between 2019 and 2021 the gap has closed by almost half. In the last year it is only 2.7 percentage points compared to the European Union of the Twenty-seven. And it is very likely that there will have been an additional cut in 2022. There is still debate about the factors that explain the convergence process. In my opinion, they would be above all the protection of income generated by ERTEs and the like, the reduction of the underground economy and, surely, an underestimation of GDP. These three elements would weigh much more than inflation or tax increases. I also believe that the narrowing of the gap has a relevant transitory component and that it will tend to reopen in the future. But it is not my intention to go into these matters here. The only thing I want is to clarify that Spain is neither hell nor paradise. Which, of course, is compatible with the fact that in a certain tax figure it is less onerous than in other neighboring countries; For example, property taxation in Portugal is clearly lower than what exists today in Spain.

How does the above fit in with the idea that the Spanish make a fiscal sacrifice among the highest in the OECD? The answer is simple. The index that is used (the so-called Frank index) does not make much sense and is not popular among academics. If the reader is interested in delving into the criticism, I recommend reviewing the Nothing is Free blog and reading what it says about it.

And if the fiscal sacrifice index is not a great guide to enlighten us, I’m afraid that neither is the “international fiscal competitiveness index”, which was also released a few days ago. The truth is, it is hard for me to accept an analytical tool that says that Ireland, with its low tax on companies, and Portugal, with its aggressive tax incentives to attract foreign taxpayers, are behind Spain; that Sweden is 10 places ahead of the United States; or that Chile is also located in the lower part of the classification, when it is one of the developed countries with the lowest level of fiscal pressure in the world.

My suggestion is that if one wants to rigorously address these issues, it is better to go to the websites of official institutions such as the OECD, the European Commission or the International Monetary Fund.