This paper uses a microsimulation approach to analyse the phenomenon of “fiscal drag” in Greece, i.e. the increase in tax revenues that arises when nominal tax bases grow, while the parameters of the personal income tax (PIT) system remain unchanged in nominal terms. First, we estimate the phenomenon in terms of the tax-to-base elasticity, which captures the responsiveness of PIT revenue to changes in the tax base under an unchanged legislation. The results suggest an elasticity of almost 1.8 in 2019, implying a built-in progressivity in the PIT system and, therefore, potential for fiscal drag. We further decompose this elasticity to identify its main drivers across income sources (labour, capital, self-employment, pensions and benefits) and tax parameters (tax brackets, tax deductions/credits) as well as across the income distribution. Second, we assess fiscal drag in practice between 2019 and 2023 by comparing actual PIT revenues (incorporating observed income growth and legislative changes) against counterfactual 2023 scenarios simulating alternative indexation practices. We quantify the actual impact of fiscal drag, defined as a share of GDP, and the extent to which government policies have managed to offset it. The findings indicate that, although Greece has no formal indexation of tax parameters, the tax policy reforms implemented between 2019 and 2023 more than offset the potential effects of fiscal drag, keeping PIT revenues broadly stable as a share of GDP, while slightly reducing the average effective tax rate. Overall, the results highlight that, during a period of rapid nominal income growth, Greece’s PIT reforms improved both the progressivity and the redistributive capacity of the tax system, while safeguarding PIT revenue. These insights are relevant for the design of future tax policy interventions.
This paper investigates the role of travel-related services – specifically package holidays, restaurants and hotels, and passenger transport by air – in the evolution of the Harmonised Index of Consumer Prices (HICP) in Greece. With tourism representing a substantial sector of the Greek economy, understanding how the prices of these services interact with broader inflationary dynamics is of increasing importance, particularly in the context of the euro area’s harmonised statistical framework. The study begins with an overview of the HICP and the national Consumer Price Index (CPI), highlighting methodological differences and similarities in how travel-related services are treated within each. It then examines the individual components of travel-related services to assess their contribution to the overall HICP, using official monthly data and decomposition techniques. Subsequently, the paper tracks the historical evolution of these services prices, exploring seasonal patterns, structural shifts and the impact of major economic events, such as the COVID-19 pandemic and the subsequent recovery. To place the Greek experience in a broader context, the analysis incorporates a cross-country comparison, examining how travel-related services inflation has varied across euro area countries and identifying potential sources of heterogeneity. The findings aim to inform both statistical and policy discussions, shedding light on the weight and behaviour of a vital sector within inflation measurement and offering insight into price dynamics that are often volatile yet economically significant. The paper concludes by summarising key findings and proposing ideas for future research.
This paper investigates the potential macroeconomic effects of a tax on banks’ profits for the Greek economy. To this end, a Dynamic Stochastic General Equilibrium (DSGE) model is employed, which allows the identification of the main transmission channels through which a tax on bank profits may affect the real economy and the financial sector. We find that such a tax affects the economy primarily via the banking capital channel and the bank funding channel, constraining the supply of credit, reducing the value of banking collateral and potentially leading to a contraction in economic activity. Overall, the findings highlight that a tax on bank profits may generate adverse effects on both the financial sector and the real economy, underscoring the need for careful policy design and evaluation of such a policy measure.
Rationale This article describes the behaviour of Spain’s foreign direct investment (FDI) flows and stocks in recent years, against a backdrop in which firms and governments increasingly take into account geostrategic considerations in their decisions on such transactions. Takeaways •Over the past decade, inward FDI flows have performed better in Spain than at global level and in the main euro area economies. •The geographical composition of Spain’s stock of inward FDI suggests a relatively low exposure to geopolitical risk, with other European Union countries being the ultimate counterpart for nearly 50% of the country’s total FDI stock in 2023. The second most important source of Spain’s FDI is the United States, which accounts for 14%. •However, in the current complex setting, extraordinary uncertainty surrounds the stability and strength of some traditional geopolitical alignments.
Rationale This article analyses how the share of non-marketable assets (basically bank loans) pledged as collateral in the Eurosystem’s monetary policy credit operations has changed over the last 12 months, homing in on the actual and potential contribution of the Banco de España’s in-house credit assessment system (ICAS BE). Takeaways •In the last 12 months the share of non-marketable assets in the collateral pledged by Spanish counterparties in Eurosystem financing operations has held steady, after growing for several years in the wake of the COVID-19 crisis. The proportion of non-marketable assets accounted for by loans to firms assessed using the ICAS BE has continued to grow for the third consecutive year, albeit more moderately. •Counterparties continue to have ample scope to increase the volume of ICAS BE-rated loans pledged, especially in the case of loans to small and medium-sized enterprises (SMEs). •Credit ratings assigned by the ICAS BE to Spanish firms have remained largely unchanged from last year, as higher financing costs have been offset by a slight improvement in the other areas assessed, particularly liquidity.
Rationale Crypto-assets have become an important economic and social phenomenon, associated with new ways of managing savings and investment. This article analyses their degree of penetration in Spain, the characteristics of their holders and their share in households’ financial wealth. Takeaways •Spanish households’ direct exposure to crypto-assets is limited. 4.8% of the Spanish population owned crypto-assets in 2021. For 80% of households owning crypto-assets, the share of these products in their financial portfolio did not exceed 10% in 2022. •Crypto-asset ownership is more prevalent among young men with a higher level of education and greater financial literacy. Crypto-asset holders consider themselves risk-tolerant, claim to plan their personal finances and also invest in other assets, such as shares and investment funds. They do not show any signs of rejecting the traditional financial system. •0.6% of households hold a substantial portion of their wealth in crypto-assets, which entails greater exposure to the risks associated with these assets.
Rationale Since 2019 consumption in Spain has increased less than income and the saving rate has risen. This article analyses households’ marginal propensity to consume and its potential contribution to the change in the saving rate. Takeaways •Marginal propensity to consume (MPC) is estimated in the Survey of Financial Competences (ECF by its Spanish initials) and the Spanish Survey of Household Finances (EFF by its Spanish initials) by the response to the following question: “What percentage of a lottery prize equal to one month’s income would you spend over the following 12 months?”. •Compared with its pre-pandemic levels, MPC has fallen in Spain in recent years. According to the EFF, this decline is considerable among higher income households, renter households and those whose liquid assets have increased more. •The estimated changes in MPC account for close to 2 percentage points of the rise in the aggregate saving rate between 2017 and 2022 (50% of the increase in this period).
Rationale The balance of payments and international investment position are of particular interest in an international environment of growing uncertainty and trade and geopolitical tensions, such as the current one. Also, the data vis-à-vis the United States are especially significant in this setting. Takeaways • In 2024 the Spanish economy’s net lending peaked at 4.2% of GDP, its highest level since the start of the current series (1995), owing to the improvement in the trade balance and positive developments in travel services. • The negative net international investment position declined further in 2024, to stand at -43% of GDP (its lowest level in 22 years), due to GDP growth and the positive balance of financial transactions with the rest of the world. • The cumulative correction of the negative net international investment position from its most negative level in 2009 through to 2024 is explained by developments in the financial sector, portfolio investment and the travel surplus built up over these years.
Rationale This article analyses Spanish general government debt in 2024 based on the statistics prepared and published by the Banco de España and drawing comparisons with other euro area countries. Takeaways •In 2024 Spain’s public debt-to-GDP ratio fell by 3.3 percentage points (pp) to 101.8%. •Central government debt-to-GDP ratio fell by 2.2 pp to 93.6% of GDP. •Spain’s debt ratio remained above the euro area average (87.4% of GDP), but the gap was reduced by 3.4 pp.
Global geopolitical tensions have increased considerably in recent years. This has affected the economies primarily via prices on commodities. As a result, global inflation has risen in the aftermath of geopolitical shocks. Given the higher energy and food price shares in the consumer basket, Greek inflation has also risen significantly. Historically speaking, Greece has repeatedly experienced periods of inflationary pressure. Over the past 50 years, global supply-side shocks have triggered cost-push inflation, which was often accommodated by expansionary policies. This paper analyses the historical trajectory of inflationary shocks in Greece, aiming to document inflation trends from the early 1970s to the present. In particular, it identifies the underlying forces that have driven inflation, which in turn entails an examination of both domestic demand and supply shocks, as well as global supply shocks. We find that there is a direct interplay between domestic demand and supply shocks, global supply shocks driven by geopolitical tensions and Greek headline inflation.
This paper evaluates the effectiveness of Value Added Tax (VAT) reductions as a tool to mitigate inflation in Greece, combining empirical evidence with structural macroeconomic analysis. First, the estimation of a small-scale structural vector autoregression (SVAR) model reveals that temporary VAT reductions exert a statistically insignificant effect on inflation. Nevertheless, when VAT reductions are accompanied by enhancements in product market competition, the disinflationary effects become both significant and persistent. Second, the results from a Dynamic Stochastic General Equilibrium (DSGE) model calibrated to the Greek economy indicate that the short-run pass-through of VAT cuts to consumer prices is partial, ranging between 19% and 25% in the short term. This pass-through is highly influenced by structural factors and the persistence of policy interventions. Notably, permanent VAT cuts generate nearly twice the inflation pass-through compared to temporary ones. The disinflationary impact is also stronger in economies with more competitive product markets, where firms are more likely to transmit cost reductions to prices. Conversely, in economies characterised by relatively high nominal rigidities or limited domestic input use, the inflation response to VAT reductions is diminished. Overall, the results of the study demonstrate the significance of structural conditions in determining the inflationary outcomes of VAT-based fiscal measures.
In this paper, we use two waves of the cross-sectional Household Finance and Consumption Survey (HFCS) for 2018 and 2021 in order to construct a housing affordability index. The index is based on the ratio of housing costs to household disposable income at both national and regional level, as well as according to the degree of urbanisation. The evolution of the index and of the housing cost overburden rate indicates that housing affordability worsened from 2018 to 2021, while also revealing significant regional heterogeneity, with the issue being more pronounced in urban areas, particularly among renting households. Subsequently, the study identifies, through both descriptive and econometric evidence, the characteristics of the most vulnerable households, showing that younger and smaller in size households, the unemployed and those with lower income are facing the highest affordability constraints. Via these findings, the paper provides useful insights for the design of policies aimed to address the housing affordability issue.
Rationale Based on a microsimulation model developed at the Banco de España, this article quantifies the possible revenue impact of certain hypothetical changes in the configuration of inheritance and gift tax (IGT) in Spain. Takeaways •In 2023 IGT revenue amounted to 0.23% of GDP in Spain, slightly above the European Union (EU) average of 0.15%. •However, IGT revenue varies considerably across the Spanish regions, as the regional governments have the power to modify the tax parameters. •Using a microsimulation model, we estimate that, if all the regional governments were to set IGT at the levels envisaged in the State benchmark legislation, the revenue raised could increase by 0.5 percentage points (pp) of GDP to 0.7%. •This is assuming that the tax changes would not lead to substantial changes in economic agents’ behaviour.
Rationale Migratory flows to Spain have been particularly strong following the pandemic, contributing to the growth of GDP and employment in the Spanish economy. This article estimates the contribution of the foreign population to GDP per capita growth in Spain between 2022 and 2024 and quantifies the channels through which it was made. Takeaways •GDP per capita in Spain grew at an annual average rate of 2.9% between 2022 and 2024. •Based on a mechanical decomposition, the foreign population made an average direct contribution to GDP per capita growth of between 0.4 percentage points (pp) and 0.7 pp. •This contribution is similar, in relative terms, to that estimated in prior upswings and was mainly shaped by two factors: the headway in the assimilation – in different dimensions – of the immigrants who entered Spain in the early 2000s and the improvements in the education level and the occupational distribution of those who have arrived in recent years.
Rationale This article examines the main factors underlying migratory flows to Spain and other advanced economies in recent times. Takeaways •Migratory flows are shaped by factors linked to the origin countries (push factors), but also by factors specific to the destination countries (pull factors). This is particularly the case in Spain, where the latter have historically been highly significant. They have also become increasingly important in recent years for explaining migrant flows to Spain and other advanced economies. •Among the specific factors in destination countries that can drive the arrival of migrants are: (i) a reduction in the unemployment rate, (ii) higher average wages and (iii) changes in migration policies that make it easier for migrants and their families to obtain stable residence status. •The economic and social conditions of the countries of origin also significantly influence migratory flows, as shown by the “push” effect generated by political instability, conflicts, natural disasters and food crises, alongside low GDP per capita.
Rationale Climate change could exacerbate the magnitude and frequency of extreme weather events, increasingly affecting crop yields. This article analyses the effects of drought on the production of a selection of key crops for Spanish agriculture. Takeaways •Granular climate data and province-level data on agricultural land and production are used for the period 2000-23 to estimate the relationship between drought and the yields of a selection of crops in Spain. •The results obtained show that the adverse impact of water scarcity on crop yields differs across crops. Specifically, the impact was found to be greater on wheat, barley and olives (largely rainfed crops) than on oranges and maize (predominantly irrigated crops). •In 2022 and 2023, Spain experienced prolonged periods of water scarcity. This is estimated to have reduced wheat and barley yields by between 20% and 30%, on average, and olive yields by at least 10%.
Rationale Artificial intelligence (AI) has the potential to revolutionise economies and labour markets. Using the Banco de España Business Activity Survey (EBAE), this article analyses the adoption of AI by Spanish firms. Takeaways •Almost 20% of the Spanish firms surveyed are using AI systems. This is less than their German counterparts, but higher than the adoption rate in Italy, according to similar surveys conducted in those countries. However, most firms are still just experimenting with AI. •The AI adoption rate is higher in technology services and in large, productive and young firms. The main obstacles are the lack of skilled labour, high implementation costs and data availability. •Spanish firms use AI mainly to optimise internal processes and for marketing. It is used less for task automation and innovation. 80% of firms believe that AI will not affect employment, and those that are already using it expect it to have a positive impact.
Rationale The increasing digitalisation of means of payment is having a significant impact on how consumers pay. Analysing how means of payment are used allows us to assess whether consumers have safe, efficient and inclusive payment options available to them. Takeaways •The use of mobile devices at the point of sale has doubled since 2022, although cash and cards remain the most frequently used means of payment. •Cards are the chief payment method online and instant payments stand out in person-to-person payments. •The main factors persuading consumers to try out new means of payment are ease of use and higher security standards.
Rationale This article analyses European Union (EU) and Spanish production and imports of food commodities. A distinction is drawn between intra- and extra-EU imports, documenting the main non-EU suppliers and their concentration. The article also examines the geopolitical affinity of these non-EU suppliers with Spain and the EU. Takeaways •Products are considered to have high external vulnerability when, in addition to being produced in insufficient quantity to cover domestic consumption, they meet three conditions: (i) extra-EU imports exceed total exports (i.e. exports cannot fully replace such imports); (ii) extra-EU imports account for more than 50% of total imports; and (iii) there is high concentration among non-EU suppliers. •On these criteria, both the EU and Spain show considerable external autonomy in the 11 food categories analysed, primarily underpinned by domestic production and trade integration within the European single market. •Spain has strong supply and export capacity in olive oil, meat, fruit and vegetables. The only food commodity group that meets the criteria for high external dependency is oilseeds. •The geopolitical positioning of the main non-EU suppliers of food commodities does not appear to pose a significant risk to either Spain or other countries in the region.
