03.09.2018  Welcome address Second Annual Research Conference of Banco de España 3 September 2018  Pablo Hernández de Cos Governor  Good morning. I would like to welcome you to the second Annual Research Conference, which this year is jointly organised by Banco de España and the Institute for Fiscal Studies. 1  Let me start by thanking our colleagues from IFS. The IFS is a benchmark for rigorous policy analysis, far-reaching influence and frontier academic research, and it is indeed an honour for us to collaborate with them. This meeting has become our flagship research conference with the main goal of bringing together leading scholars and policy-makers to discuss frontier research on recent economic developments and the policy options to address them. Last year the conference focused on macro, monetary and macroprudential policies. This year we want to turn our attention to tax and transfer systems. After several years of sustained recovery, the Great Recession has left a legacy of high public debt ratios, low potential output growth and rising inequality in some countries. For instance, the euro area aggregate public debt 1  I would like to thank Olympia Bover and Roberto Ramos for their contributions to this speech. 1  stands at close to 90% of GDP, almost 25 percentage points up on its pre-crisis level. Also, the IMF estimates that potential output growth in the major advanced economies has been declining since the early 2000s, this trend being further aggravated by the global financial crisis.
271-301 6 See, for example, the discussion in Feldstein M. (1995), “The effect of marginal tax rates on taxable income: A panel study of the 1986 Tax Reform Act.”, Journal of Political Economy 103 (3), pp. 551-572. 5  3  top earners, while the reaction of the labour supply is modest. 7  For policymaking, it is crucial to know the direction and extent of these behavioural reactions. On one hand, because they inform the need for policy evaluation frameworks that go beyond the simple estimation of morning-after effects. On the other, because behavioural responses are at the root of the optimal design of the tax and transfer system. As a consequence, accounting for them is central to addressing a host of current policy debates, such as the optimal level of progressivity. Second, one influential avenue of research has documented a consistent trend of income concentration at the top of the distribution in some OECD countries in the last few decades. One explanation behind this pattern points to the concurrent fall in top marginal rates, whereby some authors have established a causal link. For example, it has been documented that the top 1% income share in the US has increased from around 8% in the early 1960s to 18% in recent years, this trend having been accompanied by a dramatic fall in the top marginal tax rate from 85% to 35%.