This paper examines the effects on household labour supply of Spain’s latest Personal Income Tax reform, dating back to 1999. It starts with a theoretical analysis of how labour supply is influenced by the tax setting in which agents make their decisions, and a look at the tax situation of Spanish households before and after the 1999 reform. It then goes on to review empirical aspects of the estimation of labour supply functions.

This is followed by the main results of these estimations, in which the cross effects of wages have been taken into account and, lastly, by a welfare analysis using a micro-simulation of the tax reform, and the calculation of the compensating variation and equivalent variation for different groups of taxpayers. The closing section of the paper presents the main conclusions found.