Wealth taxation in Spain
In 2008, wealth tax rates were uniform across Spain. After a three-year period when wealth taxation was suspended, wealth taxes were reintroduced in 2011, but this time allowing each region to set its own tax rate. The figure below shows the 2014 wealth tax schedules by region. The horizontal axis measures wealth (in thousands of euros), whereas the vertical axis measures the wealth tax rate. As can be seen, the Madrid region is a rather special one as it held on to no wealth taxation.
The difference between Madrid and the remaining regions is significant: an individual with €3 million in taxable wealth can save up to approximately €9,400 annually by moving to Madrid.
A recent paper takes advantage of this differential to study the effect of wealth taxes on mobility. There is a wide debate that, if not harmonized, wealth taxation runs the risk of inducing massive migration and, as a result, defeating the purpose of the tax, namely to raise revenues.
Did wealthy individuals move to Madrid where differential rates set in? The figure below attempts to answer this question. The horizontal axis lists regions of origin, whereas the vertical axis lists regions of destination. The value in each cell measures net migration post-tax reform minus net migration pre-reform (that is, it measures differences in differences).
To read the heat map, pick a destination row. If the cell is dark red, then net migration (inflow from the origin region minus outflow to the origin region) is stronger toward that destination region. If the cell is blue, the opposite is true. Since we measure net flows, each region’s column is the symmetric of that region’s row.
As can be seen by the red Madrid row, there was a massive inflow of wealth tax filers to Madrid. Specifically, the authors measure a 7.5 percent increase in the wealthy population in Madrid by 6 years after wealth tax reintroduction, and a fall of 1.7 percent in the wealthy population of other regions.
The authors also find that differences in wealth tax rates across regions other than Madrid do not seem to have much of an impact on location choices. This raises the question of what is special about Madrid: is it Madrid per se or the fact that Madrid levies no wealth tax? The authors provide arguments for the second possibility. Note that it’s not just the fact that the tax rate is zero, it’s also the fact that rich individuals do not need to file for wealth taxes at all.
What did this all mean for Madrid? By attracting wealthy individuals, the Madrid region benefited from an increase in income tax revenues — a 5 percent increase —, whereas the rest of regions lost about 2.5 percent in income tax revenues. The authors add that revenue from personal income taxation is six times larger than the revenue from wealth taxation for wealthy taxpayers. Hence, the cross-base fiscal externalities are much larger in absolute terms than the direct effects!
David R. Agrawal, Dirk Foremny, and Clara Martínez-Toledano
Wealth Tax Mobility and Tax Coordination
American Economic Journal: Applied Economics 2025, 17(1): 402–430