Madrid once again sets a new record in tax revenue despite being the region in Spain with the lowest IRPF tax rate!

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I have been hammering on this for the last 20 years. If only Spain reduced its taxation, it would greatly attract foreign investments that would spur jobs and create more wealth overall. This in economic theory is known as the Laffer Curve, after US economist Arthur Laffer.

Although it may seem paradoxical at a first glance, and even counterintuitive, the fact is that significantly reducing taxes actually increases the overall tax revenue (up to a certain point). This has been proven right in Spain time and time again in regions such as Madrid and Andalusia, under liberal financial policies, which have drastically slashed their taxes (because of devolved competencies) over the last years. Madrid ranks as number one and Andalusia as number three as the highest grossing regions in IRPF (personal income tax) despite having the lowest tax rates in place!

Other regions in Spain, which in theory have stronger economies and consolidated manufacturing industry and which should be ranking first in tax revenue one would (mistakenly) assume, actually rank in the last places. These regions, under hard left-wing control, have very high taxation in place which disincentivises investments (understatement) and makes companies flee to other more tax-friendly regions.

You’d think that, in view of these results year after year, left-wing regions would make policy adjustments (read lower taxes) to optimize their regional tax revenue, yes? Think again. Not only do they not plan to reduce them, but actively and relentlessly seek to increase the tax pressure on taxpayers even creating continuously new tax figures to uphold the maintenance of a bloated public sector in dire need of being slashed to the bone.

Moreover, this attitude is abetted by Spain’s (social-communist) government who is hell-bent on bringing to heel liberal regions by way of curtailing, or altogether eliminating, devolved competencies on tax matters (as enshrined in the Spanish Constitution of 1978 no less) so all regions in Spain have the same high tax pressure in the greater interest of “fair competition” and “interregional solidarity”.

It should be noted that at any point in time these other regions in Spain, which have significantly lower tax revenues than they ought to, are free to reduce their uber-high taxation and reap the rewards, but they purposely choose not to for ideological reasons.

Source: Libremercado

“The inherent vice of capitalism is the unequal sharing of blessings. The inherent virtue of Socialism is the equal sharing of miseries.” – Winston Churchill 

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