In modern market economies two main tools are used for correcting social inequalities: progressive taxation and distribution of income in the form of services or benefits provided through the institutions and processes of the Welfare State. In fact, the two tools are supplementary to each other, as only by suitably spreading the tax burden can the State collect sufficient revenue for distributing income in order to correct the imbalances resulting from the free interplay of market forces without hampering economic growth. Spain is not an exception in that sense, but it was an exception among European Community countries in that it did not implement such principles until the eighties.

The Spanish taxation system used to be regressive and ineffective until the first democratic Government carried out a tax reform, and the tax burden increased considerably as a result of tighter tax management and collection as from 1983. Even though the tax burden increased from 28.1% of GDP in 1982 to 35% in 1990, it is still below the average for the European Community. Indeed, according to OECD data, the tax burden in Spain was the second lowest in Europe in 1989, despite the fact that the increase in the tax burden during the eighties was considerably more pronounced in Spain, and in generally in the poorer countries, than in the rest of the European Community States.

The Spanish tx system is today based mainly on three kinds of levies: "impuestos" (true taxes), "tasas" (dues and fees) and "contribuciones especiales" (special levies). The "tasas" and "contribuciones especiales" are quantitatively much lower than the true taxes and were originally collected in return for a public service provided by the authorities or for any type of benefit as a result of public works or services.

There are three levels of taxation is Spain:

• By the Central Government.
• By the Autonomous Communities (regional governments).
• By Local Authorities.

At present, national taxes in Spain can be classified as follows:

     1.- Direct taxes:
        
         - On income:
           * Corporate income tax.
           * Personal income tax.

         - On assets (affecting only individuals):
           * Net worth tax.
           * Inheritance tax.

     2.- Indirect taxes:

         - Value Added Tax (VAT).
         - Transfer tax.
         - Taxes on foreign trade: import duties.
         - Special taxes.