The redistributive effects of the system of taxes and transfers in Europe

Report

The redistributive effects of the system of taxes and transfers in Europe

Amadeo Fuenmayor, Rafael Granell and Teresa Savall, Universitat de València;

The redistributive capacity of the Spanish taxes and transfers system is among the lowest in the European Union (EU-28), with a reduction of 0.194 points in the Gini index, whereas the European average is 0.209 points. This puts Spain in sixteenth position among the 28 states of the European Union. In the case of income substitution benefits (unemployment, retirement, survivor, illness and disability), the redistributive effect is greater than the EU average: Spain occupies ninth position. However, in the case of guaranteed minimum income benefits (family, social exclusion, education and housing), Spain lags far behind the EU-28 average, occupying the bottom position. Especially serious problems are detected in contributions to Social Security, which worsen income distribution, and in the policy against social exclusion. Therefore, by way of two simulations, we analyse possible modifications to social contributions and to guaranteed minimum income benefits. For Social Security contributions, our proposal has taken inspiration from the Belgian system while for guaranteed minimum incomes, our proposal is to achieve effective application of the existing regulations, guaranteeing 100% of the minimum income for all those people who would have the right to receive it.
Key points
  • 1
       Spending on public transfers in Spain during the 2007-2016 period shows a marked anti-cyclical nature, increasing during the worst years of the crisis. Prominent because of the volume they represent are retirement and survivor benefits, followed by unemployment benefits.
  • 2
       The distribution of market incomes worsens as a consequence of the crisis. However, taxes and public transfers, in general, have a powerful redistributive effect.
  • 3
       From the perspective of both income and that of spending, Spain is set within the context of a Mediterranean welfare model, characterised by revenues and transfers representing a GDP percentage lower than the European average.
  • 4
       With respect to income, the redistributive potential of Spanish income tax (IRPF) is slightly above that average. However, the Spanish system of social contributions etc. does not favour income distribution, with Spain being the only country in the European Union where this does occur.
  • 5
       Spain presents serious problems in the set of guaranteed minimum income benefits (family, social exclusion, education and housing), and is positioned very much lower than the EU-28 average. Spending and the redistributive effect are especially reduced in family policies and in policies against social exclusion.
  • 6
       The proposals for change analysed here would situate Spain within the range of the EU-28: a scenario of modifications of social contributions towards a model closer to that of Belgium, and a scenario of modifications in minimum incomes towards the complete implementation of the current system.

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Contents of the collection

This report is part of the collection

Reports on the Redistributive Economy

made up of the following publications:

The redistributive effects of family policies

The redistributive effects of social benefits and taxes: a review of the current situation

The redistributive effects of wealth tax

The redistributive effects of special taxes

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