Progressivity and redistribution by sources of income on the dual IRPF

This article analyzes the effects on redistribution and provessivity generated by the new model of dual taxation on personal income (PIT) introduced in Spain in 2007. For this purpose, we develop a methodology to decompose the progressivity and the redistributive effect depending on both the basic elements of the tax structure and the income sources (labour, capital and business income). Using Annual PIT Return Samples IEF-AEAT for 2006 and 2007 we find that the new Spanish dual PIT improved the OVer all progressivity, although the fall in tax revenues caused by the reform led to a loss of its redistributive power. Moreover, we find changes in the contribution of tax structure elements to progressivity, being limited between income sources. The relative Weight of income sources and its impact on average effective tax rates play a key role to explain these results.