Savings neutrality for the new personal income tax in Spain

The primary aim of this research is to identify to which extent alternative ways of savings are treated differently by the Spanish personal income tax before and after the tax reform of 1998. The proposed measure for appraising savings tax neutrality is based on the methodology of effective tax rates, originally developed by King and Fullerton [1983a, 1983b] and adapted to the Spanish case by González-Páramo [1991, 1995] and González-Páramo and Badenes [1999]. In light of the results, support is found for the expected lack of neutrality under the 18/91 law and the 40/98 law. However, in the savings taxation arena, it is possible to appreciate a trend toward greater doses of simplicity and neutrality as means of a closer treatment between capital income and capital gains returns.This project was funded by the Distance Teaching National University.