Published on Wednesday, March 20, 2024

Spain | Avoid cliffs

The way some economic policy measures are designed results in unnecessary increases in production costs in Spain, hinders companies' growth, discriminates between individuals in similar circumstances, leads to lost tax revenue and can even affect people's health.

Key points

  • Key points:
  • All these problems are caused by rigid thresholds, which cause unnecessary changes in the behavior of businesses and households.
  • As for what to do, the answer could lie in coming up with a design that avoids these "cliffs", is in line with the spirit of the regulation, and includes a recurring evaluation of its effects.
  • For instance, policymakers need to get used to "smoothing" the "peaks" produced by rigid limits. Instead of withdrawing all public assistance as of a specific date, age of the beneficiary or income level, an option could be a gradual and continuous reduction, enabling families and businesses to gradually adapt their behavior.
  • Another option is to use "lotteries," in which the chances of being audited increase, continuously, depending on the specific characteristics of the business or individual, and to foster a culture of evaluation of measures.

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