Supply Side Policies

Policy 1:

Description: Spain announced cuts to their income and corporate tax in 2014. The tax rate was proposed to drop from 30% to 25%. By 2016, it was estimated that the average individual's income tax bill would "fall by an average of one-eight." Their highest income tax rate at 52% was intended to be reduced by 7%, while those with incomes below €12,500 will see a drop of around 6%. These cuts "would leave tax rates slightly above the levels before the financial crisis erupted in 2008."

Arguments for policy: The government estimated that these cuts would help to inject around 8 billion euros into the economy. These were introduced along with value added taxes as part of "emergency measures to reduce the swollen deficit. The finance minister Cristobal Montoro said that these efforts ar part of en effort to "recompense Spaniards for the efforts made during the economic crisis." The country wants to boost spending and investment as they recover from a "double-dip" recession.

Outcomes: Many challenged the tax cuts as "unfair and regressive," specifically due to the benefit to the wealthy, but they appear to have served a benefit to Spain's economy. The country has grown faster than some of its European neighbors and has reached further security.


Policy 2:

Description: It is proposed that Spain increase their economic contribution to the development human capital (through education and training, in addition to job finding help). This proposal is largely due to their notable absence of focus on education and training over the past 30 years and their high unemployment (at ~24%).

Arguments for policy: The arguments are that a shift towards a focus on human capital will help to balance the country's economic situation. Spain previously placed heavy emphasis on infrastructure while human capital was neglected. As noted by the high unemployment rate, growth and prosperity appears to be a challenge, but the increased investment is proposed counteract the current situation. It will likely assist in further economic growth within the country.

Outcomes: Not implemented


Policy 3:

Description: Spain very recently announced that they planned to increase the country's public R&D budget by 8.3% (up to 7 billion Euros). This is the biggest change since the economic crisis in 2008. This boost to the budget would contribute to R&D loans for companies and more money for pubic research.

Arguments for policy: Since the crisis in 2008, Spain has faced a constricting budget, which has led to economic challenges for development. The budget should help to spur growth and development, specifically benefiting researchers and corporations.

Outcomes: While this is a relatively new policy, there has been significant backlash and analyzation into the potential outcomes. The director of the Center for Genomic Regulation in Spain, Luis Serrano, said that the increase in money for researchers would be good, but there are many problems (including the fact that the majority of the budget would be for R&D loans rather than funding for public research centers and scientists). From an economic standpoint, this could be extremely beneficial, but many of the promised R&D loans in the past have been left unspent, while public research didn't all benefit that much due to the application of the budget“Continue Reforms to Make Growth Work for All in Spain.” OECD, Organisation for Economic Co-Operation and Development, www.oecd.org/economy/continue-reforms-to-make-growth-work-for-all-in-spain.htm..

Works Cited

“Continue Reforms to Make Growth Work for All in Spain.” OECD, Organisation for Economic Co-         Operation and Development, www.oecd.org/economy/continue-reforms-to-make-growth-work-           for-all-in-spain.htm.

Hirst, Nicholas, and Nicholas Hirst. “Spain Announces Tax Reform.” POLITICO, POLITICO, 25             June 2014, www.politico.eu/article/spain-announces-tax-reform/.

Fundación Real Instituto Elcano. “Strategic and International Studies.” Inicio, 

       www.realinstitutoelcano.org/wps/portal/rielcano_en/contenido?    

       WCM_GLOBAL_CONTEXT=/elcano/elcano_in/zonas_in/ari52-2014-chislett-spain-leads-

       world-market-for-infrastructure-development.

“Spain Plans Tax Cuts to Get Economy Going.” AP NEWS, Associated Press, 20 June 2014,        

       www.apnews.com/2b601fb5ef9946b3b77faa78818aad1b.

Pain, Elisabeth. “Spanish Research Gets a Nice Budget Boost-but Scientists Say It Will Be of Little 

       Help.” Science, 10 Apr. 2018, www.sciencemag.org/news/2018/04/spanish-research-gets-nice-

       budget-boost-scientists-say-it-will-be-little-help.

Components of Aggregate Demand

Spain GDP (USD, Billions). 1996-2016

Consumer Confidence vs. GDP

Consumer Spending vs. GDP

Business Confidence vs. GDP

Government Spending vs. GDP

Balance of Trade vs. GDP

Some indicators, such as balance of trade, consumer confidence, and business confidence don't correlate strongly with changes in GDP, but indicators such as government spending and consumer spending track extremely closely, almost matching their shifts exactly. It seems that spending in general has a substantial impact on GDP (or GDP has a substantial impact on spending). 

Economic Data: Spain

Economic Data: Spain

Exports as a % of GDP (2016) [Leakage]

33.3%

General government spending as a % of GDP (2016) [Injection]

44.2%

Net investment in non-financial assets as a % of GDP (2016) [Injection]

0.62%

Tax revenue as a % of GDP (2016) [Leakage]

33.2%

The savings rate as a % of GDP (2016) [Leakage]

5.2%

Imports as a % of GDP (2016) [Injection]

30%

Based on these figures, which were greater, injections or leakages in the economy?

The largest injection / leakage is general government spending, as an injection at 41% of GDP. Exports
and imports lean 4.3% towards leakages, with a higher percentage of exports. Overall, injections are at 71.62%,
nearly equivalent, but slightly lower than leakages at 71.9%.

Figure 1: Spain's GDP growth over the past 20 years

Based on the graph, which part of the business cycle does you country appear to be in?

Spain appears to be approaching the middle/end of a boom cycle, likely to be completed in the next few years
(based on historical data). The still lie within the expansion phase, but if GDP growth levels off, they will enter
the contraction phase.  

Works Cited

“Spain” OECD, Organization for Economic Co-Operation and Development, data.oecd.org/spain.htm.
“Spain” The World Bank | Data, The World Bank Group, data.worldbank.org/country/spain.