From The CATO Institute:
by Juan Ramón Rallo, Ángel Martín Oro, Adrià Pérez Martí
Cato Institute
February 29, 2012
Last year’s election of Spain’s conservative People’s Party opened up an opportunity to implement much needed fiscal and structural reforms. However, merely a week following the inauguration of Prime Minister Mariano Rajoy, the government announced a significant tax hike that will have pernicious effects on the Spanish economy. Raising taxes will only put an additional drag on private sector recovery by reducing workers’ disposable income—and consequently, their ability to consume, save, or repay their large amounts of outstanding debt—and by decreasing foreign investment. Moreover, high taxes and high public spending are negatively correlated with economic growth and entrepreneurship. To reduce the deficit, cutting government spending substantially would be a better alternative than raising taxes.
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