The Spanish income tax reform of 2015: analysis of the effects on poverty and redistribution using microsimulation tools

Abstract

In this work we analyze the effects of the 2015 reform of the Spanish personal income tax (PIT) on tax revenue, liquidity, redistribution, progressivity, and poverty, using microdata. Tax reform has increased the redistributive effect. The applicable legislation in 2016 is almost 6.3% more redistributive than that in 2011, as measured by the Reynolds-Smolensky index. This is a remarkable achievement since greater redistribution has been attained through significantly lower tax revenue. The 2016 legislation has produced 4.4% lower tax revenue, but progressivity, as measured by Kakwani index, has increased by 12.2% from the 2011 legislation. The redistributive and progressivity analysis has been conducted with the use of microsimulation tools developed in the Instituto de Estudios Fiscales (IEF), in Spain. The poverty analysis is made using EUROMOD, a tax-benefit microsimulation model for the European Union.