Fiscal drag with microsimulation:Evidence from Spanish tax records

Sofía Balladares () and Esteban García-Miralles ()
Additional contact information
Sofía Balladares: Universitat de Barcelona & IEB
Esteban García-Miralles: Banco de España

No 2025/08, Working Papers from Institut d'Economia de Barcelona (IEB)

Abstract: Fiscal drag arises when nominal tax parameters remain unchanged despite nominal income growth, thereby increasing effective tax rates and revenue. We use Spanish administrative tax records and a detailed microsimulation model to examine fiscal drag in personal income taxation through two complementary approaches. First, we estimate tax-to-base elasticities to assess the progressivity of the tax system and potential fiscal drag under homogeneous income growth. We uncover significant heterogeneity in elasticities across income sources, across the individual income distribution and in the underlying mechanisms. Second, we conduct counterfactual simulations to quantify the actual impact of fiscal drag from 2019 to 2023, finding it accounts for about a third of revenue growth. Our findings offer insights for public finance modelling, revenue forecasting, and tax policy design.

Keywords: Inflation; taxes; progressivity; indexation; bracket creep (search for similar items in EconPapers)
JEL-codes: D31 E62 H24 (search for similar items in EconPapers)
Pages: 43 pages
Date: 2025
References: Add references at CitEc
Citations:

Downloads: (external link)
https://ieb.ub.edu/publication/2025-08-fiscal-drag ... spanish-tax-records/

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:ieb:wpaper:doc2025-08

Access Statistics for this paper

More papers in Working Papers from Institut d'Economia de Barcelona (IEB) Contact information at EDIRC.
Bibliographic data for series maintained by ().