Addressing Economic Challenges in Spain: Government Spending, Debt, and Productivity - Pro, Esercizi di Macroeconomia

Scarica Addressing Economic Challenges in Spain: Government Spending, Debt, and Productivity - Pro e più Esercizi in PDF di Macroeconomia solo su Docsity! 30409 Macroeconomics Group Work Spanish Economy Report Adeline Ann Hervey Alice Greta Panico Federico Giorgi Konstantin Erik Schillhorn Leonardo Tonelli Ludovico Amedeo Panariello 1 Contents 1 Introduction 3 2 Gross Domestic Product 3 2.1 Main figures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 2.2 Current Account and Tourism . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 2.3 Human Development Index (HDI), GDP per capita and Inequalities . . . . . . . . . . . . . . . . . . . . 3 3 Public indebtedness 4 3.1 Government spending and revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 3.2 Government debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 3.3 One of the PIGS countries: the sovereign debt crisis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 3.4 Key recommendations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 4 Inflation 5 4.1 Causes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 4.2 Consequences . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 4.3 Policies enacted and recommendation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 5 Unemployment 6 5.1 Causes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 5.2 Consequences . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 5.3 Focus: Labor Market Duality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 5.4 How the government is trying to solve the problem? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 5.5 Are those changes having the same effects predicted by our model? . . . . . . . . . . . . . . . . . . . . . 8 6 Productivity 8 6.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 6.2 Role of innovation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 6.3 Skills and Human Capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 6.4 Solow Model . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 6.5 How Spain is tackling the problem . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 6.6 Executive Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 7 Annexes 11 7.1 Government spending is uneffective . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 8 Notes 12 9 Graphs 13 2 tax base should be broaden, and imposed higher excise duties on alcohol and tobacco and raising environment-related taxes. 4 Inflation 4.1 Causes The present high inflation was in response to global factors, including the recovery in demand associated with the reopening of economies following the health crisis and increase in energy and food prices deriving from the war in Ukraine and disruptions in global production chains. Despite the share of energy imports from Russia are relatively low compared to other member state, further price increases increased pressure on already high levels of consumer prices and production costs. For much of 2021 and 2022, these factors were intensified by the depreciation of the euro, particularly against the dollar, following a tightening of monetary policies in other regions, which made imports more expensive. So, energy products and imported consumer goods became more expensive. See Graph in Figure 9 4.2 Consequences Direct inflation captures higher cost of energy to the consumer, while indirect effects spread through production costs and affect productive sectors unevenly depending on their cost structure, the flexibility of their production with respect to alternative energy sources and their market power. The propagation of indirect effects through global production and distribution chain made processes more expensive everywhere, worsening pandemic spread of inflation through bottlenecks in global supply chains; this has significant effect on food prices and non-energy industrial goods, the underlying component of HICP. Despite the sharp increase in consumer prices, wage settlements turned out to be moderate, which led to a significant decline in real wages. Higher cost of lending affected loan demand and increased difficulties to access credit by agents. Also, an increase in relative prices lowers households’ purchasing power and and firms’ investment decisions, increasing even uncertainty about possible further negative repercussions in the future. Hence, almost half of the extraordinary savings collected by households during the pandemic are held in bank deposits and are unlikely to increase consumption. Increase in supply difficulties lowers firms’ profit margin, but profit margin containment and labor cost moderation will be key to avoid significant second-round effects on inflation. The crisis has an uneven impact on households according to the proportion of food and energy in their basket and according to their education. 17 4.3 Policies enacted and recommendation Inflation will continue to be one of the main risks to economic activity. The European authorities have responded to the Russian invasion of Ukraine and the challenges it has posed, by implementing measures in multiple areas. In the energy domain, the European Commission’s programme REPowerEU combines a series of initiatives to diversify the EU’s fossil fuel supply sources, step up energy saving and accelerate the deployment of renewables. The central bank implemented a contractionary monetary policy, which increased interest rates higher than initially expected. The 12-month Euribor continues to rise sharply, standing at around 3.6% in April 2023. This increases mortgage loan repayments (higher funding costs have tightened the general conditions for loans), thus putting more strain on housing affordability. Spanish households are highly exposed to rising interest rates with 70% of the stock mortgages at variable rates, therefore banks should maintain prudent provisioning and capital policies. The rise in inflation has however been mitigated even by fiscal measures, prioritizing containment of retail prices for energy and supporting vulnerable households and electro intensive industries. Also, under the next Generation EU (NGEU) program new funds will be deployed, that will support GDP growth. The rise in inflation increased uncertainty as to the reach of the disinflation process, the lower demand, and the higher borrowing cost. In the context of high inflation and an uncertain outlook, the Spanish economy has help up well, even considering the increase in cost of living spurred by rising food and energy prices. With higher inflation, lower external demand and rising interest rate, GDP growth has been sustained. In the absence of further reductions in the cost of energy, or a more intense economic slowdown, total inflation is expected to fall to around 4% on average this year, and core inflation is expected to remain between 5% and 6%, with both dropping to 3% by 2024. It is estimated that the measures adopted in Spain since mid-2021 to mitigate the consequences of high inflation for economic agents will have a budgetary impact of around €37 billion between 2021 and 2025. An initial analysis of the measures breaks them down into those aimed at easing the increases in the price of some of the goods whose price has risen the most and those that seek to prop up the income of certain groups of agents. Overall, the measures implemented in Spain (and in the euro area) do not sufficiently target the hardest hit agents. Measures better designed to target the most vulnerable agents would have been more effective, at a lower fiscal cost, in mitigating the impact of the inflationary crisis on such agents. Overall, the measures enacted have helped reduce inflation and we reccomend a contractionary monetary policy and restrictive fiscal policy to decrease the short-term inflation. These policies do not shift the Phillips curve but in the medium run they decrease the price level. 18 5 5 Unemployment 5.1 Causes Underlying structural unemployment rate is very high, reaching a level above 15% and being persistent in all population groups. This level is higher than the European average. Spain’s labor market faced significant structural challenges prior to and following the pandemic. The unemployment rate in 2019, of about 14 percent, was among the highest in the EU and biased towards the young and long-term unemployed. The youth unemployment rate was 32.5 percent, more than twice the headline rate, and the long-term unemployed, which was 5.3 percent of the labor force against 2.6 percent in the EU, represented almost 40 percent of total unem- ployment. The COVID-19 crisis intensified the existing weaknesses, negatively affecting the most vulnerable groups by increasing unemployment and income inequality. Also, due to the structurally high level of unemployment, Spain’s spending per unemployed tends to be much lower than in peer countries. In fact, in 2019 ALMP spending on training amounted to 10 percent of per capita GDP, which was among the lowest across OECD countries; moreover programs related to long term and young employment suffered low participation. The cause of this high structural level unemployment are multiples: the labor market structure (parameter z of the WS-PS model), the low average product of labor (parameter A) and an expansionary crisis due to higher prices but constant wages, which shifted the Phillips curve to the right. The Spanish labor market foresees the widespread use of temporary jobs contracts, higher than euro average, that hinders the accumulation of workers’ human capital. Labor mobility was low, not only across regions, but also across jobs due to high mobility costs. In addition, the presence of collusive and oligopolistic practices not only directly impacts the distribution of income (to the detriment of the consumer) but also negatively affects employment creation, creating entry barriers and hampering free competition. Human capital is a key determinant to increase structural productivity and the capacity to innovate, lowering struc- tural unemployment. It is affected by education and demographic changes: education attainment level and quality of education is very low with respect to euro average, even due to low spending on education: this negatively affects human capital, thus unemployment and productivity. Spain’s demographic decline, caused by the low fertility rate and the rise in longevity, lowers the proportion of the working age population. This decreases human capital quality, and so lowers worker productivity, and labor force size. All this increases structural unemployment, thus negatively impacting potential growth. 19 20 21 See Graphs in Figures 9 and ?? 5.2 Consequences High levels of unemployment have negatively affected the Spanish economy in many ways: it has a negative effects on per capita income and so on emotional wellbeing; it lowers accumulation of human capital, consumption and confidence in future income, increasing inequalities. In fact, job precariousness makes access to affordable housing difficult especially for young people in urban areas.Also, it limits potential growth in the medium and long run because it implies an underutilisation of productive capacity. The current high rate of structural unemployment means that once the structural floor of the labor market has been reached, additional reductions in the unemployment rate can only occur through increasing wages above their equilibrium level: this means that any type of demand stimulus will lead to an acceleration in the general level of price, making the economy more vulnerable to inflationary spirals. This pressure on wages and prices in the economy could undermine competitiveness: even if there is no sign of this happening for the time being, it is worth paying attention over the coming quarters to wage developments. Graphically there is a shift to the right of the Phillips curve, consistent with an increase in the estimated structural unemployment rate (18% of the active population), which means that there is a current and future increase in inflation. 5.3 Focus: Labor Market Duality As said, the Spanish economy faces high unemployment rates, attributed partly to labor market structural deficiencies and regulations that elevate workers’ bargaining power, leading to unrealistic wage demands. This results in a labor market duality, where workers are hired on either fixed-term or open-ended contracts, disproportionately affecting immigrants and young, unskilled workers. To illustrate, in 2019 over 24 percent of the Spanish work force was employed on temporary work contracts, much higher relative to other OECD countries. Similarly, each month in Spain, 90 percent of hires were on temporary work contracts. These figures help explain the high unemployment rates observed in Spain over the past three decades, averaging 17.3 percent compared to 7.6 percent for EU-8 countries and 5.2 percent for the U.S. The paper aims to explore government actions to address these challenges and proposes guidelines for improving Spain’s economic landscape. In this section, we aim to construct a model for the dual market by utilizing a modified version of the PS-WS model, maintaining the focus on the different demand of wage of the two categories (fixed-contract and open-ended contracts seekers) while assuming that there is not a difference in wages between the two classes. Before starting the construction of the model, we explore the assumptions made: 1. the labor force can be categorized into two distinct segments: ”fixed-term seekers” (group 1) and ”open-ended seekers” (group 2); 2. nominal wage supply is equal for both groups; 6 3. productivity of the first group is smaller by an alpha percentage with respect to the productivity of the others (evidence-based 22); 4. open-ended workers have more bargaining power. Since the hiring cost of open-ended contracts are higher, as well as the firing costs 23, the bargaining power of open- ended workers is higher. Now, let’s write the Price Setting and the Wage Settings, given our four assumptions and given that the subscript 1 is to specify the open-ended workers and the subscript 2 for the other group. (Figure 23) PS : p = (1 +m) ·MC = (1 +m) ( W s A1 + W s A2 ) W s p = A1 (1− α) 1 +m · 1 2− α (1) WS : WD 1 p = F (µ1, z1) ; WD 2 p = F (µ2, z2) (2) There are then two different equilibria for the two section of the labor force, described by the following two systems. 1. { W s p = A1(1−α) 1+m · 1 2−α WD 1 p = F (µ1, z1) 2. { W s p = A1(1−α) 1+m · 1 2−α WD 2 p = F (µ2, z2) (3) From the model we can detect some specific dynamics, given our assumptions: • The difference in productivity increases the marginal cost for the firms and therefore decreases the wage supply, compared to a standard model with A1 = A2 (in the graph, in orange there is the supply line for A1 = A2). Then having a less productive defined group in the labor force of course reduces the wage supply and (for any level of wage demand) increases the unemployment rate and also reduces the level of natural output. • The fraction of workers with higher bargaining power (open-ended contracts) will demand for higher wages than the one supplied, then there would be higher frictions with firms and this will push to a higher natural unemployment rate in the medium run for group 1 compared to the other. The model, even if it’s simplistic, can describe broadly both the observation found in the introduction: majority of people hired in each month are on temporary contracts and the higher average unemployment rate. The model, even if it has its limitations, gives us the idea on how the types of contracts presented in the Spanish legislation and their different costs of employment influence unemployment level and the contractual structure of the labor force. What are the solutions proposed by our model, in order to increase the production of the country? The best thing would definitely be to decrease the unemployment of the open-ended contract jobs, even at cost of temporary employments, that is clear if we look at the equation of the country’s medium run natural output: Y = (t− µ1)A1 + (1− t− µ2)A2 (4) being “t” the fixed portion of the labor force looking for the open-ended contracts. The fixed-term employees, being less productive, can also have a higher unemployment rate. This can be done by changing bargaining powers of the two job seekers, diminishing the gap that exists between them. 5.4 How the government is trying to solve the problem? The Government of Spain, as a partner to the Global Deal, has committed to support decent work by significantly reducing the use of temporary forms of employment in the Spanish labour market. As part of this commitment, a tripartite agreement to reform labour law and promote the use of open-ended contracts was concluded after several months of intense negotiations between the Government, employer organizations (CEOE and CEPYME) and trade unions (CCOO and UGT) on 23 December 2021 24. This reform, included in RRP, demonstrates a clear preference for open-ended contracts. This fundamental principle is supported by various initiatives, including minimizing the variety of temporary contracts and deterring brief-term employment through the implementation of financial penalties25. The reform already proved a positive impact in the 2022 first quarter. In April 2022, out of the 1,450,000 new employment contracts being signed, almost 700,000 or 48.7% were open-ended contracts. This represents a trend break with the past as that share has been stubbornly hovering around the 10% number for more than three decades 26. This new trend is also showing up in the share of open-ended contracts in total employment. Compared to the average over the 2015-2021 period, that share increased by 7 percentage points reaching 77% in April 2022 27. Also unemployment rate followed a decreasing trend after the reform, from 16% it dropped reaching a 10 year low of 12% (Graph in Figure 18). This of course was followed by an increase in the rate of inflation given its negative relation with unemployment. The 2021 structural labor market reform also expanded the role of ERTEs (short-time work schemes) as an employment adjustment mechanism and improved collective bargaining and incorporated training incentives to the short-time work schemes (ERTEs and the new RED mechanism). In particular, the Sectoral-RED Mechanism, which targets economic sectors that are experiencing structural changes, requires companies to develop a requalification plan for affected 7 scores of its graduates by international standards need improvement. The Organic Law on the university system aims to address these issues, focusing on education quality and alignment with economic challenges. The low proportion of graduates in STEM subjects (24% in 2020) is a concern, necessitating enhanced focus on mathematics and teacher training. Finally, an efficiency analysis of public education spending, which stands at 4.2% of GDP, is essential. Identifying and addressing inefficiencies, as ongoing evaluations by AIReF suggest, is crucial for optimizing education outcomes. 6.4 Solow Model In the long run, output per capita grows at a constant rate ga. Increase in human capital is subject to a diminishing marginal of return as physical capital; we include the growth of human capital in ga to make an approximation. What Spain needs to do is to increase innovation and human skills, which increase ga, so the productivity. This increases output growth at the long run equilibrium and the growth of output per worker, thus reducing inequalities. We can see in the WS-PS model that increasing human capital and technological productivity increases the parameter A, thus shifting the PS curve upwards. This means that, given N, the productivity increases. Hence less frictions are created in the labour market and the natural unemployment rate decreases. 6.5 How Spain is tackling the problem The Spanish Recovery and Resilience Plan (RRP) has allocated over EUR 11 billion for Research and Innovation (R&I) from 2022 to 2024. This significant investment targets the long-standing issue of underinvestment in these sectors, focusing on key areas such as health, energy, and industrial development. The RRP is designed not only to boost Spain’s R&I capabilities but also to create a more robust connection between scientific research and business ventures, particularly encouraging investment in technology startups. However, the plan faces challenges, particularly in terms of governance and coordination of R&I policies. This is largely due to the dual governance system in Spain, which often results in fragmented initiatives and high administrative costs. To address these challenges, Spain is implementing new strategies and laws, such as the Law on business start-ups and the reform of the Insolvency Law, aiming to remove barriers to innovation and support business growth, especially for smaller firms. The Science Law is another key measure, with a goal to increase government R&D&I funding to 1.25% of GDP by 2030, marking a pivotal step towards revitalizing Spain’s innovation landscape. Investments in intellectual property rights in Spain are showing signs of recovery, returning to levels seen before the pandemic. This recovery is expected to surpass 4% of GDP, bolstered by the National Recovery and Resilience Plan (NRRP). Furthermore, the pandemic has accelerated the digitalization of business activities, offering an opportunity to enhance the productivity of Spanish companies. Despite this progress, Spain still confronts challenges in fully leveraging new technologies and in providing adequate digital skills training. The PERTE program, a key element of the NRRP, is focused on transforming important sectors of the Spanish economy through collaborations between the public and private sectors, aiming to stimulate growth and employment. Nevertheless, Spain continues to struggle with issues of low productive investment and minimal productivity gains, which are critical hindrances to the country’s potential economic growth. Compounding these challenges are an aging population and high youth unemployment. To sustain economic growth and manage national debt, it is crucial for Spain to boost investment and productivity. This includes tackling high education dropout rates and promoting job creation in technical sectors, which are vital for the future of Spain’s economy. 6.6 Executive Summary In addressing Spain’s economic challenges, this paper underscores the foundational role of low education and productivity levels as primary contributors to diminished structural output. The persistently high unemployment rate is attributed to demographic shifts and inefficiencies within the labor market, characterized by capital misallocation and the prevalence of short-term contracts. Furthermore, inflationary pressures are traced back to international factors, including the disruptions in global supply chains resulting from the COVID-19 crisis. Additionally, uncertainties induced by the war in Ukraine have exacerbated inflationary concerns, necessitating a nuanced policy response. Against this backdrop, the paper advocates for a multifaceted strategy that not only addresses immediate concerns but also lays the groundwork for sustained economic resilience. By integrating insights from the wage-setting and price-setting model, the Phillips curve, Okun’s law, and the Solow model, the paper provides a comprehensive framework for informed policy decisions. In conclusion, this paper offers strategic recommendations to fortify Spain’s economic foundations, emphasizing targeted interventions to address low education, productivity, and labor market inefficiencies. By navigating the complexities of international dynamics, Spain can foster an environment conducive to robust economic growth and enhanced resilience in the face of global uncertainties. 10 7 Annexes 7.1 Government spending is uneffective Under the “economic classification” approach, public spending is grouped into five main categories: final consumption, social benefits, investment, interest and other current transfers. The following data are again referred to 2019. Expenditure on social benefits: Spain spending on social benefits amounted to 18,4% of GDP, in line with EU level, however, this expense largely growth after the 2008 crisis. This spending is largely determined by expenditure on pensions: on the most recent estimates, pension spending will increase to almost 17% of GDP by 2050, because of the demographic deterioration and legislative change. Despite the large spending, the share of people at risk of poverty or social exclusion remains among the highest in the EU. Moreover, social expenditure is oriented towards the older generations and social transfers have a low impact on child poverty reduction. Expenditure on investment: Spain spending on investment is low compared to EU level: it represented 15,4% of business investment in Spain, the second lowest among the EU-28 countries. Macroeconomic theory points out that investment expenditure can booster the economy’s potential growth and, thus, fiscal sustainability. In the medium and long term, the fiscal multipliers associated with increases in public investment are much higher than those linked to increases in public consumption. Expenditure on interest: Spain spending on interest is high compared to EU level: spending on this category represented 2.3% of GDP in 2019, above the EU average (1,6% for EU-15 and 1,4% for EU-28). 11 8 Notes Notes 1https://www.treccani.it/enciclopedia/spagna/ 2IMF. (October 5, 2023). Spain: Gross domestic product (GDP) in current prices from 1988 to 2028 (in billion U.S. dollars) [Graph]. In Statista, from https://www.statista.com/statistics/263768/gross-domestic-product-gdp-in-spain/ 3https://tradingeconomics.com/spain/gdp-growth-annual 4World Bank. (September 19, 2023). Spain: Distribution of gross domestic product (GDP) across economic sectors from 2012 to 2022 [Graph]. In Statista, from https://www.statista.com/statistics/271079/distribution-of-gross-domestic-product-gdp-across-economic-sectors- in-spain/ 5World Bank. (September 19, 2023). Spain: Distribution of the workforce across economic sectors from 2011 to 2021 [Graph]. In Statista, from https://www.statista.com/statistics/271063/distribution-of-the-workforce-across-economic-sectors-in-spain/ 6IMF. (October 5, 2023). Spain: Ratio of government expenditure to gross domestic product (GDP) from 2018 to 2028 [Graph]. In Statista, from https://www.statista.com/statistics/275347/ratio-of-government-expenditure-to-gross-domestic-product-gdp-in-spain/ 7https://ourworldindata.org/human-development-index 8IMF. (October 5, 2023). Spain: Gross domestic product (GDP) per capita in current prices from 1987 to 2028 (in U.S. dollars) [Graph]. In Statista, from https://www.statista.com/statistics/263773/gross-domestic-product-gdp-per-capita-in-spain/ 9IMF. (October 5, 2023). Spain: Ratio of government expenditure to gross domestic product (GDP) from 2018 to 2028 [Graph]. In Statista, from https://www.statista.com/statistics/275347/ratio-of-government-expenditure-to-gross-domestic-product-gdp-in-spain/ 10https://papers.ssrn.com/sol3/papers.cfm?abstractid = 4357035 11IMF. (October 5, 2023). Spain: Government revenue and spending from 2018 to 2028 (in billion euros) [Graph]. In Statista, from https://www.statista.com/statistics/275333/government-revenue-and-spending-in-spain/ 12IMF. (October 10, 2023). Spain: Budget balance from 2018 to 2028 (in billion euros) [Graph]. In Statista, from https://www.statista.com/statistics/270401/budget- balance-in-spain/ 13IMF. (October 5, 2023). Spain: National debt from 2018 to 2028 (in billion U.S. dollars) [Graph]. In Statista., from https://www.statista.com/statistics/270411/national- debt-of-spain/ 14IMF. (October 5, 2023). Spain: National debt from 2018 to 2028 in relation to gross domestic product (GDP) [Graph]. In Statista, from https://www.statista.com/statistics/270416/national-debt-of-spain-in-relation-to-gross-domestic-product-gdp/ 15Eurostat. (June 8, 2021). National debt in EU countries in the 4th quarter 2020 in relation to gross domestic product (GDP) [Graph]. In Statista, from https://www.statista.com/statistics/269684/national-debt-in-eu-countries-in-relation-to-gross-domestic-product-gdp/ 16https://tradingeconomics.com/spain/gdp-growth-annual 17https://ec.europa.eu/economyf inance/publications/pages/publication1421en.pdf 18https://www.bde.es/f/webbe/SES/Secciones/Publicaciones/PublicacionesAnuales/InformesAnuales/22/Files/InfAnual2022En.pdf 19https://www.imf.org/en/Publications/CR/Issues/2023/01/19/Spain-Selected-Issues-528341 20https://commission.europa.eu/system/files/2022-05/2022-european-semester-country-report-spainen.pdf 21https://www.bde.es/f/webbe/SES/Secciones/Publicaciones/InformesBoletinesRevistas/BoletinEconomico/23/T3/Files/be2303-art12e.pdf 22https://wol.iza.org/uploads/articles/45/pdfs/fixed-term-contracts.pdf 23https://izajoels.springeropen.com/articles/10.1186/2193-9012-1-4 24https://theglobaldeal.com/good-practices/reform-labour-law-spain/Spain%20-%20reform%20of%20the%20labour%20law.pdf 25https://www.lamoncloa.gob.es/lang/en/gobierno/councilministers/Paginas/2021/20211228council.aspx 26https://prensa.mites.gob.es/WebPrensa/noticias/laboral/detalle/4104 27https://www.lamoncloa.gob.es/serviciosdeprensa/notasprensa/inclusion/Documents/2022/040522-presentacion-afiliacion-seguridad-social- abril-2022.pdf 28https://www.bde.es/f/webbde/SES/Secciones/Publicaciones/PublicacionesSeriadas/DocumentosOcasionales/16/Fich/do1603e.pdf 12 2,018 2,020 2,022 2,024 2,026 2,028 40 45 50 55 Year G ov er n m en t ex p en d it u re ov er G D P Figure 6: Ratio of government expenditure to GDP from 2018 to 2028 2,018 2,020 2,022 2,024 2,026 2,028 400 500 600 700 800 Year B il li on eu ro s Government spending Government revenue Figure 7: Government spending and revenue in Spain from 2018 to 2028 2,018 2,020 2,022 2,024 2,026 2,028 −120 −100 −80 −60 −40 −20 0 Year B u d ge t b al an ce in b il li on eu ro s Figure 8: Budget balance in Spain from 2018 to 2028 15 Table 1: Main indicators on taxation Category Spain EU-27 2018 2019 2020 2021 2010 2018 2019 2020 2021 Tax structure (% of GDP) Total taxes 34.7 34.8 36.8 40.1 39.9 40.1 Labour taxes 16.8 17.5 19.8 20.7 20.7 21.5 Consumption taxes 9.6 9.4 9.1 11.1 11.1 10.8 Capital taxes 8.4 7.8 7.9 8.2 8.1 7.9 Total property taxes 2.7 2.6 2.7 2.2 2.2 2.3 Recurrent taxes on immovable property 1.2 1.1 1.2 1.2 1.2 1.2 Environmental taxes 1.8 1.8 1.7 2.4 24 2.2 2,018 2,020 2,022 2,024 2,026 2,028 90 100 110 120 Year D eb t ov er G D P Figure 9: National debt of Spain in relation to gross domestic product (GDP) 2028 2,018 2,020 2,022 2,024 2,026 2,028 1,200 1,400 1,600 1,800 2,000 Year N at io n al d eb t in b il li on U .S . d ol la rs Figure 10: National debt of Spain from 2018 to 2028 16 0.00 50.00 100.00 150.00 200.00 Greece Italy Portugal Spain Cyprus France Belgium Croatia Euro area Austria Slovenia Hungary EU Germany Finland Slovakia Ireland Poland Netherlands Malta Lithuania Romania Latvia Denmark Sweden Czech Republic Bulgaria Luxembourg Estonia Percentage of GDP C ou n tr y Figure 11: Public debts of EU member in 2020, as a percentage of GDP Figure 12: Underlying inflation in the Euro Area by component 17 2019 Q1 2020 Q1 2021 Q1 2022 Q1 2023 Q1 2024 Q1 2025 Q1 90 95 100 105 Year P er so n s E m p lo ye d Figure 19: Persons employed Figure 20: Spanish and euro emplyment rate Figure 21: Share owing to the difference between Spanish and Euro area rates 20 2000 2005 2010 2015 2020 0 0.5 1 1.5 2 2.5 3 Year % o f G D P Spain Euro Area Figure 22: R&D&I investment in Spain and Euro Area µ W p WS WS∗ PS2 PS1 µ2 µ1 Figure 23: Graph illustrating hyperbolas PS1 and PS2 with intersection points µ1 and µ2. Figure 24: Innovation EU scoreboard 21 2,000 2,005 2,010 2,015 2,020 1 1.5 2 2.5 3 Year R & D E x p en d it u re (% o f G D P ) OECD ESP ITA DEU FRA Figure 25: R&D Expenditure as a Percentage of GDP 2,000 2,005 2,010 2,015 2,020 0 2 4 6 8 10 Year V al u e Figure 26: GFCF (only gov contribution) 22 Figure 31: Correlation PIAAC score ∼ employment rate Figure 32: Correlation PIAAC score ∼ R&D 25 E0 E0 SR(K) (δ + gN + gA)K SR(K) K S,δ Figure 33: Solow Model 1 E0E1 E0E1 SR(K) (δ + gN + gA)K(δ + gN + g′A)K SR(K) K S,δ Figure 34: Solow Model 2 µ0N PS WS E0A0 1+m µ W P Figure 35: Solow Model 3 µ0Nµ1N PS PS′ WS E0 E1 A0 1+m A1 1+m µ W P Figure 36: Solow Model 4 26