Labour Supply Responses to Income Tax Changes in Spain

This paper simulates the response of the Spanish labour supply to income tax changes using estimates for the intertemporal elasticity of substitution of leisure, calculated using a pseudo-panel built combining information from the EPA and the ECPF, for the period 1987-1997. According to our findings, income tax reforms have an impact on Spanish labour market, although the effects are quite small, making this mechanism a restricted tool for addressing the country’s existing social security system deficit. Further, labour responses differ for men and women, across workers’ age, as well as between permanent and fixed-term contract workers.