Progressivity and Redistribution of Wealth Taxation in Spain

Cite: García-Rodríguez, F. (2025). Progresividad y Redistribución de la Imposición Patrimonial en España: un Análisis de Microsimulación con el Panel de Hogares. FEDEA, Estudios sobre la Economía Española no. 2025-19. Madrid.

Wealth taxation occupies a central place in the current economic debate. In a context of strong wealth concentration, net wealth taxes emerge as an instrument with potential to strengthen the equity of the tax system and improve the redistributive capacity of the state. Spain constitutes a paradigmatic case: the Wealth Tax (Impuesto sobre el Patrimonio, IP) combines a complex design, marked by regional decentralization, with limited revenue-raising capacity compared to other European countries.

International context

The debate on wealth taxation is not new. At the beginning of the 1990s, up to twelve European countries maintained this tax figure. However, administrative difficulties in valuing assets, the international mobility of capital, and criticisms of its effectiveness led to its disappearance in most of them. Currently, only Norway, Switzerland, Spain and, outside Europe, Colombia maintain a general net wealth tax. This international retreat reinforces the relevance of the Spanish case, where the IP remains in force but presents a configuration that limits its real scope.

Methodological framework

This study analyzes the redistributive performance of the IP and various alternative designs using fiscal microsimulation techniques applied to the Household Panel of the Spanish Tax Agency (PH). The PH is a nationally representative administrative microdata set that integrates information on income, wealth, and sociodemographic characteristics of around 2.7 million individuals. Its level of detail and coverage makes it possible to accurately assess how different tax configurations alter the distribution of wealth.

The analysis is based on the Reynolds–Smolensky (R–S) index, which measures the redistributive capacity of a tax. Following the methodology of De Sarralde et al. (2010, 2011), this indicator can be decomposed into two components:

1. Level effect (incidence): the increase in redistribution explained by revenue capacity.

2. Distance effect (progressivity): the variation in redistribution attributable to changes in the progressive structure of the tax.

This decomposition allows us to observe not only how much each design redistributes, but also through which mechanism it does so.

Main simulations

The study compares seven different scenarios:

• Spanish IP (2022): current design, with high exemptions, regional allowances, and a narrow base.

• Norway (Sim. NO): proportional tax with a reduced exemption threshold and discounted valuation of housing; high revenue capacity, lower progressivity.

• Switzerland (Sim. CH): cantonal model with low rates and regional heterogeneity; limited redistributive effect.

• France (Sim. FR): tax focused exclusively on net real estate wealth; high structural progressivity but narrow base.

• Internal reforms of the Spanish IP:

—  Sim. 1: elimination of the exemption threshold.

—  Sim. 2: abolition of regional allowances.

—  Sim. 3: combined elimination of exemptions and allowances.

• Piketty's proposal: broad progressive scale applied to total net wealth, with high incidence and strong redistributive capacity.

Key results

Figure 2 summarizes the findings. In all alternative scenarios, redistributive capacity increases compared to the current design of the Spanish IP. The Norwegian system stands out for its strong redistributive capacity, explained almost entirely by higher incidence. The Swiss model barely improves the results due to its low rates and decentralization. France shows modest improvements, with structural progressivity but a base limited to real estate wealth.

Internal reforms of the Spanish IP show that eliminating exemptions and allowances significantly increases redistribution, especially when both measures are combined. The Piketty proposal multiplies redistributive capacity thanks to its high incidence, although with slightly lower progressivity than the current Spanish IP.

Discussion

The results reveal a central paradox: the Spanish Wealth Tax is, in structural terms, the most progressive of the models analyzed, but its real redistributive capacity is practically nullified by low incidence. This means that, although the design precisely concentrates the tax burden on the highest wealth brackets, low revenue—stemming from very high exemptions, widespread regional allowances, and a narrow base—reduces its impact on inequality to almost zero.

This finding forces us to reflect on the role that the IP can play in Spain’s tax architecture. On the one hand, it shows that the tax is not without virtues: it is an instrument capable of clearly identifying taxpayers with the greatest economic capacity and doing so with a degree of progressivity superior to international models. On the other hand, it demonstrates that the current rules make it a very limited tax, one that collects little and, in practice, barely contributes to reducing wealth inequality.

The simulations point to several reform paths. Even relatively modest adjustments—such as eliminating the exemption threshold or abolishing regional allowances—generate significant increases in redistributive capacity. Combining both measures multiplies their effect, showing that it is possible to reinforce the role of the tax without completely redesigning it. Beyond these partial reforms, comparisons with other countries suggest that a broader and more uniform scheme, like the Norwegian model, or more ambitious proposals such as Piketty’s, allow for both revenue sufficiency and progressivity in a way that today seems unattainable in Spain.

From a broader perspective, the empirical evidence challenges the often widespread idea that wealth taxes are inherently ineffective or inefficient. International experience shows that their success depends less on the instrument itself and more on how it is designed. Where low exemptions, broad bases, and clear rules exist, the tax raises enough revenue to have a real impact. Conversely, when its application is fragmented or fiscal privileges are introduced, its scope is inevitably diluted.

In short, the Spanish Wealth Tax is not marginal by definition, but rather a tax whose potential is currently underutilized. Properly designed, it could become a key tool to reinforce the redistributive capacity of the tax system and to respond to the current context of growing wealth concentration. The debate should no longer revolve around whether to keep or abolish this tax, but around how to configure it so that it fulfills its role of equity and sufficiency in the twenty-first century.

References

• Díaz de Sarralde, S., Garcimartín, C., & Ruiz-Huerta, J. (2010). La paradoja de la progresividad en países de baja tributación: el impuesto a la renta en Guatemala. Revista de la CEPAL, 2010 (102), 87-102. 

• Díaz de Sarralde, S., Garcimartín, C., & Ruiz-Huerta, J. (2011). Progresividad y redistribución en reformas fiscales. Los efectos nivel y distancia. Una aplicación al IRPF. Revista de economía aplicada, 19 (57), 97-116.