The end of the estate tax?

Consider a world with 17 regions, like the Kingdom of Spain, or 27, like the EU.

03 October 2022 Monday 21:44
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The end of the estate tax?

Consider a world with 17 regions, like the Kingdom of Spain, or 27, like the EU. Each region is a fiscal jurisdiction that establishes taxes and provides public services to promote the collective well-being of its citizens. Now, capital, merchandise and people move between regions responding, among other forces, to the fiscal actions taken. The fiscal policy of a jurisdiction has, therefore, an internal effect, sensitive to the needs of its citizens, and an external impact on other regions, whose interests, logically, will not have been sufficiently taken into account by those who have established it. .

The result of this interaction must be understood in similar terms to the corresponding one between oligopolies: there is no Adam Smith who has affirmed that the interaction of jurisdictions that look after their own interest leads to the maximum collective happiness. From this observation follows the need for coordination between jurisdictions so as not to harm each other, a need that will be as or more important the more intense the interaction. Coordination can be done in a decentralized and implicit way: I don't hurt you because you can hurt me. However, this type of coordination can often lead to very biased results: someone has more power or more instruments to retaliate. If this is the situation to reach results that are collectively good and at the same time equitable, explicit coordination through, if it exists, a supra-jurisdictional authority will be better.

The wealth tax in Spain is a clear case in which the Government's action is indicated: the external effect of eliminating the tax for a community –let's say Madrid– can be great, especially by way of attracting investment. At the same time, the possibility of countermeasures, in a context of highly stressed regional farms, is limited.

The Government has acted effectively. It proposes the creation of a state tax on whose wealth what has been paid for heritage would be deducted. Madrid's advantage is therefore neutralized. I have to say that I would have preferred another measure: eliminate the wealth tax and compensate the communities that collected it. I think that the tax will have to end up being eliminated and the Government's measure can complicate it.

I do not suggest the elimination of the wealth tax because I believe that the fiscal pressure is excessive – it is rather insufficient for the public services that we want – or because of a doctrinal argument such as the disincentive effect of saving. The effect exists, but all taxes distort something. VAT penalizes consumption in favor of saving. In addition, saving or consumption are not absolute values: they can be more or less convenient depending on the economic moment. My reasoning is that the situation we have on a Spanish scale is reproduced on a European scale. Portugal or Italy compete with Spain to attract investment and this tax makes us vulnerable. The EU will not harmonize it and sooner or later it will have to be eliminated. If, in order to appropriate the collection that the Ayuso State will take, it restores it – it will depend on the details and political considerations – the day the Government wants to eliminate it, it will be more expensive, for the sake of compensation, than if it had done it now.



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