September 16, 2025 – Room 1038 – 14.30h

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.

We examine how information influences the marginal willingness to pay taxes (MWTPT) through a four-wave randomized survey experiment conducted during the COVID-19 pandemic. Specifically, we assess the impact of quantitative (data on the actual tax-to-GDP ratio) and qualitative (basic pros and cons of taxation) information on revealed MWTPT. The results show that qualitative information increases MWTPT, particularly among high-income individuals. In contrast, quantitative information only reduces MWTPT among high-income individuals who initially underestimated the aggregate tax burden. Hence, those who are potentially more affected by taxes are also more sensitive to the provision of information. These findings suggest that information can shape perceptions of the tax system and, consequently, influence individuals’ willingness to contribute to public good provision. This has important implications for tax policy design and efforts to reduce political polarization. If these efforts are not properly implemented, the revealed price of democracy will remain biased.

We analyse whether decentralisation affects tax morale through both greater trust in institutions (the carrot) and greater perceived tax enforcement (the stick), two drivers of compliance that operate via the promotion of voluntary compliance and deterrence, respectively. We take advantage of the Spanish case characterised by a general regime, which is partially decentralised, and the so-called foral regime, operated in two regions, which is fully decentralised (i.e. high tax regulatory and administrative powers). We draw on data from a unique survey that are representative both of the national level and of the foral regions. Under the foral regime, the average citizen neither presents a higher level of tax morale, nor has the perception of a higher level of enforcement. Thus, any structuring of the tax administration within a federal system cannot be based on what are presumed to be higher levels of compliance resulting from the decentralisation of the administration.

19h – 20.45h – Cercle d’Economia