Report
The redistributive effects of social benefits and taxes: a review of the current situation
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1One of the main reasons why Spain has such high levels of inequality is the lower capacity of the system of taxes and benefits to reduce the inequalities that occur in the distribution of primary income.
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2The main advances in the reduction of inequality in Spain took place in the 1980s with the development of social benefits and progressive taxation. During the last crisis inequality grew and during the recovery it has decreased very slowly in comparison with the revival of employment.
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3Pensions are the instrument with the largest redistributive effect, as happens in other high-income countries. Unemployment benefits have a stronger effect on income distribution than in other countries, but their role has been waning due to the fall in the coverage rate and the increasing importance of the welfare mode, with lower protective intensity than the contributory mode.
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4The redistributive capacity of the last economic safety net – the system of income guarantee benefits – is very limited. Unlike other countries, Spain has no one sin¬gle safety net but rather a complex mosaic of benefits, with protection gaps and major regional differences in protection against the risk of poverty.
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5In clear contrast with what happens in those European countries with more robust welfare states, family benefits in Spain have very little effect on income redistribution.
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6Health spending in Spain has a strong redistributive effect, the largest of social benefits in kind. Over the last decade, the cuts made in some areas, such as pharmaceutical expenditure, have diminished its progressivity.
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7The overall effect of spending on education in Spain is redistributive, although less so than that of health expenditure. However, not all spending is progressive, and significant problems connected to inequalities of social origin persist, including early school leaving.
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8Income tax in Spain is the second most redistributive instrument after pensions. Its capacity to correct inequality has lessened over time owing to the process of tax rate reduction.
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9Spain is no exception to the rule whereby indirect taxation is gaining more and more importance within public revenue as a whole. VAT is a regressive tax and its reforms have reinforced this feature. Albeit with a minor impact, other consump¬tion taxes, such as excise taxes, are also regressive.
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10Wealth taxes contribute little to redistribution and are significantly limited by the low levels of tax compliance, certain exemptions, regional inequalities and problems of tax evasion and avoidance.