Changes in tax residence in search of more advantageous taxation increase inequalities because they reduce "the redistributive capacity of governments". The latest IEB Report, prepared by the Barcelona-UB Institute of Economics, analyzes the economic consequences of changes in the tax domicile of taxpayers with high incomes.
Mathilde Muñoz, UC Berkeley professor and NBER researcher, explains in a study that 50% of the population with lower incomes "lose out in fiscal competition and would always be better off in a federal union". The author's estimate is that "their loss of well-being ranges between 10% and 20% on average, depending on redistributive preferences". On the other hand, taxpayers who leave "benefit from tax competition, because their taxes go down with the mobility caused by taxation when countries enter a regime of tax competition".
The analysis is based on the fiscal competition between states, although the casuistry can be similar within the same country, as happens in Spain. Isabel Z. Martínez, researcher at the KOF Swiss Economic Institute of the ETH Zurich, analyzes what happened in the Swiss canton of Obwalden when in 2006 the regional government modified decreasing tax rates with the aim of attracting taxpayers with assets tall "The reform did not increase incomes", the economist says in an article. "Total tax revenue in Obwalden increased over time, but income tax revenue in other cantons still increased more when compared," he says.
In the same work and citing a previous report from 2010, Martínez recalls that "tax differentials in Spain motivated migratory responses that were not sufficient to compensate for the mechanical income losses resulting from the fact that tax rates were lowered".
Rafael Granell, IVIE researcher, points out that it is "obvious that, if those with higher incomes leave your community, you have less public income". And remember that transfers of tax domicile are very easy within the same country.
Alejandro Esteller-Moré, Professor of Economics at the University of Barcelona and coordinator of the latest IEB Report, explains that within a country, "when there is fiscal competition between two autonomous communities, in the end there is one that loses and another that wins". Or they can lose both in some cases. What the studies published by the IEB on Switzerland or the United States suggest - adds Esteller - is that the territory that lowers the tax rate does not achieve more revenue, even if more fortunes arrive, because taxes go down for everyone. And obviously the territory that loses taxpayers also gets less revenue. "In terms of competition between countries, it can have a positive effect, but not within the same State", he adds.
"Among the autonomous communities, fiscal competition must exist at reasonable levels, but the problem is when you enter into aggressive competition, as happens on an international state level with countries such as Ireland and Luxembourg", reflects Jorge Onrubia, professor of the Complutense University of Madrid and researcher at Fedea.
In Spain, do we have aggressive fiscal competition? "I think so", answers Onrubia, although he clarifies that there is an "original sin" with the establishment of a tax on wealth as well as patrimony, since it distorts the fiscal strategy of the autonomous regions.
In the opinion of this economist, the de facto suppression by some autonomous communities, such as Madrid and Andalusia, of the property tax could be understood, in a certain way, as a fraud on the law. "You have an instrument given to you by the Central Government to supplement your income and you put a 100% bonus on it. It is almost a fraud", he points out.
This problem, however, has ended after the Central Government has imposed a new tax on large fortunes, which is complementary to that of.
Once the Constitutional Court has endorsed its legitimacy after the appeals of regional governments, the communities where patrimony was 100% subsidized - Madrid and Andalusia - have announced that they will review this subsidization. It is a move that will reduce fiscal competition between communities. However, it remains to be seen what consequences this new situation will end up having.
