Econ 322 Group ProjectBY KHANH NGUYEN AND LIAM JOUETT

Background of Government • Spain’s Government is a Parliamentary Monarchy.

•3 Branches of Government (Executive, Judicial, and Legislative)

•Chief of State serves as the figure head of the government, while the Prime Minister acts as the head decision of the government.

•Ministry of Finance along with Prime Minister are responsible for tax policy.

•Economy is one approximated as the 5th largest in the Eurozone.

Tax & Spending Policies •Tax – Spain has lower tax rates than the average OECD country. As of 2014 they generated a tax revenue of 10,148 Billion (US Dollars). Their tax system is a progressive tax system.

•Spending – The government’s main expenditures are Social Security, Public Health and Education.

Taxa Data 2008 Tax Revenue = 11,573 Billion (US Dollars)

- Sources of Tax Revenue:

1. Personal Income Tax = 6.92 % of GDP

2. Corporate Profits Tax = 2.7 % of GDP

3. Tax on Payroll = 2.57% of GDP

4. Tax on Goods and Services = 8.01 % of GDP

- All Taxes were below the OECD average.

Government Spending 2008 Total Governemnt Spending in 2008 = 41.1 % of GDP

- The Main Expenditure being Social Security

2008 = 11.83 % of GDP

-Followed by expenditure on Public Health = 6% of GDP

-At time of crisis in 2008 Budget Deficit = 4.42 % of GDP

-In 2009 Budget Deficit increased to 10.16 % of GDP

Pre 2008Spain economy was growing rapidly (the debt to GDP ratio was falling)Housing boom after joining the EU (Cheap loan to buyer and builders) Much like in the US Spain house prices was on the rise (44% increase 2004-2008)

Pre 2008 The Spanish Nominal GDP has been steadying increasing since the mid-ninetiesStarted to slow down in 2006Descending into the recession from 2006 into 2008

The Great recession (Impact)In late 2008 Spain economy enter recessionThe housing bubble burstGDP drop dramatically

The Great Recession (unemployment)

Spain unemployment rate Youth Unemployment rate

Government Respond2009

Increase of VAT’s general rate to 18% Elimination of the deduction of €400 on Personal Income Tax Reduction of ministries expenditure (€8,000 million) Spain create a bail out fund for their bank of 100 billions euros

2010 Setting of limits to hiring in the civil service (one entry per ten exits) Reduction of ministries expenditure (€5,000 million). Suppression of monetary incentives to childbirth (elimination of the baby-check) 5% reduction in public sector’s wages Pensions’ freezing Cuts on medicines and public works expenditure.

Government Respond2010 Late

Increase of Personal Income Tax for high income groups Reduction of ministries expenditure (€13,200 million). Increase of taxes on tobacco Privatization of public enterprises – National Lotteries (Loterías del Estado) and Airports (AENA)

2011 Anticipation of payments on account of the Firm’s Income Tax Additional cuts on medicines spending. Spain raises the retirement age from 65 to 67

Government RespondThere are two main reform the government hope to accomplishFirst is the Banking sector reformRaise the minimum requirement for core capital to 8% or 10% of

risk-weighted assetsrecapitalization of banking entities

Second is the labor market reformConsider to be a relatively conservative

Spain Future Current report is showing that Spain economy is slowing coming backGDP per capita 29,863GDP growth at 3.1%Unemployment rate 22.7%Labor force is increasing at 23 millions

Reference•Krugman, Paul. 2009. “The Pain in Spain …” The New York Times. November 27, 2015

•Bentolila, Samuel, Juan José Dolado, and José Francisco Jimeno. 2008. “Two-Tier Employment Protection Reforms: The Spanish Experience.” CESifo Database for International Comparisons in Europe (DICE) Report 4/2008.

•Krugman, Paul. 2010. “Anatomy of a Euromess …” The New York Times. November 27, 2015

• Spanish Economic Crisis Summary. (n.d.). Retrieved November 27, 2015, from http://www.economicshelp.org/blog/5525/economics/spanish-economic-crisis-summary/

Reference •"Spain's Economic Crisis: A Timeline." The Telegraph. Telegraph Media Group, n.d. Web. 27 Nov. 2015.

•Carballo-Cruz, Francisco. "Causes and Consequences of the Spanish Economic Crisis: Why the Recovery Is Taken so Long?"Panoeconomicus 58.3 (2011): 309-28. Web. 27 Nov. 2015.

•OECD.org. (n.d.) http://www.oecd.org/

•Spain: Economy. (n.d.) http://globaledge.msu.edu/countries/spain/economy