History Of Americ And Spain's Tax System

Until mid 1970's government spending in Spain was fairly low compared to international spending, keeping tax pressure reasonably below the OECD average. Although after the 1975 shift to democracy and up until the late 1980's, taxation rose sharply to finance the increasing government expenditure as you can see from the graphs Spain's personal income tax rises from 14.5 per cent in 1975 to 20.4 per cent in 1980, there is also a rise in social security and payroll in 1975 the rate was 47.5 per cent and rises to it's highest point at 48.6 per cent.

The tax reforms implemented up to the 1990's aimed mainly at endowing Spain with a modern tax system, and to raise funds to meet increasing demand for public services, two of the important steps in this process were the 1978 personal and corporate income tax reforms and the 1991 reform of the personal income tax. These reforms caused personal income tax to increase from 14.5 per cent in 1975 to 20.4 per cent in 1980, and in 1990 the personal income tax rose from 21.7 per cent to 23.6 per cent. The Spanish tax system was also subject to a number of pressures: coping with a political commitment to decentralise spending fluctuations and taxation; pursuing distrubutional objectives; and providing aid to activities and constituencies in distress. Second generation tax reforms, comprising the 1995 corporate and the 1998 personal income tax reforms, aimed at tax simplification, promoting tax neutrality and enhancing incentives for work, saving, risk taking and investment. The 1995 corporate reform caused corporate income tax to increase from 5.4 per cent in 1995 to 8.9 per cent 2000 and the 1998 personal income tax reform had an adverse effect it lowered 5 per cent from 23.6 per cent to 18.6 per cent.

Between 1975 and early 1990's total government expenditure- driven by spending on welfare programmers and on public investment - rose by more than one percentage point of gdp annually reaching 45 per cent of gdp in 1992. This rise in government outlays was initially matched by a significant increase in social security contributions and in personal tax revenue, subsequently increasing public spending was covered by a rise in consumption taxes, with a considerable tax hike due to the introduction of VAT.

The tax revenue generated in 1970 from social security and payroll was 37.4 per cent reaching 48.6 per cent in 1980, personal income tax in 1970 was 11.5 increasing 10.2 per cent to 21.7 in 1990. Owing to the rapid rise in spending, Spain had, in1990, a tax ratio only somewhat below the European average, starting from a level almost twice as low in 1975, as and considerably higher than in non European OECD countries. Over the 1990's, policy aimed at fiscal consolidation to fulfill the Maastricht treaty criteria. This was achieved largely by reining in government expenditure- especially on