Political  Calculations
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Having looked at how Greece arrived at its current crisis, we thought we'd turn to the next country that is coming to dominate the bad economic news in Europe: Spain.

Here's our chart showing the relationship between Spain's GDP per capita and its annual government tax collections and expenditures per capita for each year from 2000 through 2011.

 

Unlike Greece, we find that the Spanish government's expenditures throughout much of the period appeared to be stable, with the government running significant surpluses in 2005 through 2007. Spain Government Spending and Tax Revenue per Capita vs GDP per Capita, 2000-2011

Unfortunately for Spain however, those surpluses were based on that country's large housing bubble, which greatly increased the numbers of people paying the nation's highest income tax rates as their incomes were highly inflated during this period of time. We know this is the case because Spain's tax rates throughout nearly all of this period were very stable, and essentially unchanged from 2000 through 2010. The only way we would see this pattern then is if the distribution of income in Spain during this time shifted to increase the numbers and incomes of upper income earners, who were benefiting from the bubble economy.

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