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Rolf Campos, Professor, IESE, University of Navarra

The easy way

Mon, 01 Mar 2010 09:25:25 +0000 Published in ABC (Madrid)

There are only two ways to reduce the fiscal deficit: lower the public expense or increase tax collection. And, given the tax base on which VAT is levied, this is the easiest tax with which to increase revenue. It is also the least imaginative option. Reducing expenditures is more difficult, since it requires studying savings possibilities and the feasibility of implementing them at internship.

Even if there is no possibility of reducing the expense, there are interesting alternatives. One of them consists of taking advantage of the opportunity to redesign the Spanish tax system. A reduction in social contributions is a measure that could have a great impact on the level of employment. A portion of the VAT increase could be used to replace what would no longer be paid by these taxes to work. To evaluate proposal we must ask ourselves whether the benefits of a reduction in social contributions exceed the costs of the corresponding increase in VAT. Has anyone in the government asked this question? It would be interesting and instructive to know what conclusion they reached.