Friday, November 28, 2014

How realistic are the economic plans of Podemos?

Given the ridicule heaped on the economic proposals of Podemos, my impression is that they are not actually that far outside what is possible if you run some basic numbers.

How much room does Spain have in raising taxes? Currently Spain collects about 37% of the GDP in taxes, for a total of about 500 billion euros. Germany (who we must all now worship as the model of economic success) collects 45% of their GDP in taxes and is doing quite well. If Spain raised their taxes this amount, there’d be about 100 billion euros of additional spending capacity.

The 600 euro a month basic income, multiplied by 47 million residents would come out to about 30 billion euros. However, much of this would find its way back to the government in forms of taxes collected (since it is likely people would spend this).

Spain is actually incredibly stingy when it comes to social transfers in general. For people with less than 50% of the median income, only 14% of their income comes from social transfers, vs 47% in Germany.

The belief that the only agency capable of making change is the European Central Bank (which by design is supposed to be independent of elected officials) is to me a stunning abdication of the responsibilities of national governments.


trebots said...

German voters vote for high taxation because they think governments will do something useful with the proceeds (apart from mailing them to the Mediterranean). I'm not sure the same necessarily applies in Spain.

Anonymous said...

I think evidence shows the Swiss economy is better than the German to worship, and in Switzerland government tax income is less than 25% of the GDP. American macroeconomic or unemployment figures are also far better than Germany's, also with government tax collection under 30% of the GDP...

santcugat said...

Switzerland is a bad example since it basically thrives because of tax evasion.

Depends on what people want... if they want Scandinavian-style equality or American no-holds-barred capitalism.

Spain tries to run a Scandinavian system with a US tax rate and that is obviously not going to work.

Either system is a legitimate choice that people ought to be able to vote for.

The US is great for the people at the top, but it really sucks if you are poor (or you get cancer, then lose your job/insurance and go bankrupt from the medical bills).

J said...

But also we have to consider that Germany has a better taxation system. A big chunk of the difference between the GDPs goverment get in taxes is because there is less black market

Spain has high marginal types but doesn't get enough money in taxes. If we were as nice as in Finland, perhaps we could increase the types. But we are not.

Remember 2 rules (you can look for studies):

- Higher marginal types means more black economy
- For small/uniform populations is easier to have working high taxation systems.

Also, did you mean 30 billion or 300 billion? ;-)

santcugat said...

You are right, 300 billion a year if everyone got the 600 euros and sat on their ass doing nothing.

Regarding marginal rates, I remember reading that when they last raised the VAT, they actually ended up getting less in revenue than before.

If instead of raising rates, the government made it easier to pay taxes (for example, create a simple-to-use automatic invoice system that does VAT automatically, especially now with the more complicated cross-European VAT rules)