Tax Reforms and Economic Performance

Abstract

Despitetheinte gration of Spain into theEurope an Union and thehigh rates of growth recorded between 1995 and 2007, relative per capita income in Spain with respect to the United States was only 69 per cent in 2007, slightly lower even than in the mid-1970s. As in many other European countries, it seems that Spain faces a ‘glass ceiling’ which constrains complete convergence with the United States. Though the lower level of GDP per hours worked accounts for three-quarters of the gap between Spain and the United States, a lower use of labour at both the intensive (hours per employed) and extensive (employment) margins also explains a significant part of it. For these reasons, to understand the macroeconomic performance of the Spanish economy relative to the United States, it is very important to take into account the differences in labour utilisation between the two countries.