Estimating the impact of inflation on Spain’s tax burden: The hidden effects of fiscal drag
Fiscal drag
Fecha: marzo 2025
Desiderio Romero-Jordán
SEFO, Spanish and International Economic & Financial Outlook, V. 14 N.º2 (March 2025)
Spain’s tax system has been heavily impacted by inflation, which has increased the tax burden by pushing taxpayers into higher brackets and eroding the real value of allowances and deductions. Indeed, the increase in tax bills was an estimated 311 euros for low-income taxpayers, 458 euros for middle-income taxpayers, and 622 euros for high-income taxpayers, with bracket creep alone increasing middle-income taxpayer bills by a further 225 to 450 euros. While targeted relief measures have been introduced, such as higher deductions for low-income earners, these adjustments are insufficient to address the broader issue. The persistence of fiscal drag poses risks to economic growth and equity, highlighting the need for a transparent and consistent policy approach to prevent unfair increases in the tax burden.