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Home Publications Blogs Beat the Press Spain Had Budget Surpluses Prior to the Recession

Spain Had Budget Surpluses Prior to the Recession

Wednesday, 31 August 2011 04:54

In an article on plans by the Spanish government to pass a constitutional amendment requiring a balanced budget, the Post told readers that:

"annual deficits spiked during the recession."

This statement implies that the country was already running deficits before the recession. In fact, Spain had budget surpluses in the three years prior to the downturn.

Spain's problems have nothing to do with excessive government spending or budget deficits, they stem from the collapse of a huge housing bubble that the European Central Bank (ECB) was too incompetent to notice and/or take steps to rein in. The same ECB officials responsible for this disaster are now dictating terms to the countries that face deficit problems as a result of the collapse of speculative bubbles across Europe and the rest of the world.

Comments (4)Add Comment
No Spain, No Gain: Public Efficiency Trumps Private Scarcity
written by izzatzo, August 31, 2011 6:31
Spain's problems have nothing to do with excessive government spending or budget deficits...

Exactly. Any economist knows that scarcity of resources applies only to the private, not public sector since public resources are unlimited given their superior efficiency which allows special interest groups to extract them at will from taxpayers.

Stupid liberals.
Socialists? (Of the WWI Variety)
written by leo from chicago, August 31, 2011 11:19
I'm hardly an expert on european politics but I was listening to the segment on 'The World' last night about Spain possibly passing a balance budget amendment and it struck me as ironic that the party in power is 'socialist'. Wasn't that the same in Greece? Yet both countries are pursuing contractionary policy.

Some socialists! More like the variety who went along with WWI.

Words Chosen Only Ater....
written by James, August 31, 2011 3:07

Some serious deliberation among the editors at the Post...

Debate was between "Annual deficits" or "Years of annual deficits," and they concluded a very reasonable and accurate description is "Annual deficits."

It's the volatility, stupid!
written by POWinCA, August 31, 2011 10:58
Spain's progressive and highly complicated tax system causes increased volatility in tax revenues. When times are good, revenues soar. When times are bad, revenues plunge. But spending rises faster in the boom than it falls during the bust, so surpluses turn quickly into deficits. Spain's property transfer tax is about 10% of the house value, so revenues from those taxes have plunged with house values. Annual property taxes are also affected by boom and bust cycles.

All tax systems experience some volatility, but the more progressive the tax and the more narrow the tax base, the more volatile revenues are. Spain is also beset by rampant tax evasion and avoidance.

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About Beat the Press

Dean Baker is co-director of the Center for Economic and Policy Research in Washington, D.C. He is the author of several books, his latest being The End of Loser Liberalism: Making Markets Progressive. Read more about Dean.