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Can fiscal decentralization increase social welfare?

Touching on the territorial debate in Spain, Alejandro Esteller, professor of the Universitat de Barcelona (UB) and director of IEB’s research program in tax systems analysis, offers us a new Info IEB highlighting the advantages of fiscal decentralization based on its ability to adjust to the peculiarities of each Autonomous Community (AC) in Spain.

Specifically, it does this by calculating the top optimal marginal tax rate that is optimal for each AC in terms of personal income taxes. On the one hand, the analysis concludes that there is a great diversity between what is optimal for each AC. On the other hand, it compares the optimal with reality by observing, for example, that Navarre comes closest to the optimal rate (the optimal being only 2 percentage points above what is actually applied), while the divergence is greater in the AC of Madrid (23 percentage points of discrepancy).

Over the past few weeks, the disadvantages derived from harmful tax competition have been emphasized, while the supposed gains derived from fiscal co-responsibility tend to be, let’s say, despised. This new document provides an area for territorial debate.