Bypassing Progressive Taxation: Fraud and Base Erosion in the Spanish Income Tax (1970-2001)

IEB Working Paper N. 2015/31

48 Pages Posted: 14 Nov 2015  

Sara Torregrosa Hetland

Lund University, Department of Economic History

Date Written: November 10, 2015

Abstract

In this paper I estimate under-assessment of incomes in the Personal Income Tax during the years following its introduction in Spain. The methodology combines an analysis of discrepancy with National Accounts and an econometric exercise, which follows and slightly modifies the Feldman and Slemrod (2007) procedure, based on the relation of reported charitable donations with the composition of income in tax micro-data.

Both calculations show that concealment of income differed substantially across sources and levels, with better compliance at the bottom of the distribution of taxpayers. Because of this, fraud made the tax less progressive than it was on paper. Compliance improved over the next decades, but the overall levels were still far from those attained in developed countries, because of lack of administrative capacity or political will to enforce the new regulation. In this way, general, comprehensive income taxation was hardly a reality 20 years after its introduction.

Keywords: Tax evasion, base erosion, under-reporting, progressivity, personal income tax

JEL Classification: H23, H24, H26, N44

Suggested Citation

Torregrosa Hetland, Sara, Bypassing Progressive Taxation: Fraud and Base Erosion in the Spanish Income Tax (1970-2001) (November 10, 2015). IEB Working Paper N. 2015/31. Available at SSRN: https://ssrn.com/abstract=2688624 or http://dx.doi.org/10.2139/ssrn.2688624

Sara Torregrosa Hetland (Contact Author)

Lund University, Department of Economic History ( email )

Box 117
Lund, S221 00
Sweden

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