Spain’s Transformation After a Decade of Fiscal Competition

Over the past decade, Spain’s autonomous communities have increasingly used their taxA tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities. powers to make their tax systems more attractive for both entrepreneurs and residents. Now in its 10^th edition, the Regional Tax Competitiveness Index (RTCI) highlights a growing divergence between regions that have embraced tax reform and those whose tax systems have remained largely unchanged. By 2026, some territories had transformed themselves from laggards into leaders, while others fell behind as their neighbors modernized their tax systems.

The Biggest Winners: Reformers That Climbed the Ranking

The most remarkable success stories over the period are Extremadura and Andalusia.

Extremadura Moved from Last Place to Top Ten

No region improved more between 2017 and 2026 than Extremadura. Over the decade, it climbed 11 positions, moving from 19^th to 8^th place and increasing its overall score by 1.43 points.

This remarkable transformation was the result of a sustained reform agenda. The regional government progressively reduced the burden of key taxes, beginning with the introduction of a 99 percent inheritance taxAn inheritance tax is levied upon the value of inherited assets received by a beneficiary after a decedent’s death. Not to be confused with estate taxes, which are paid by the decedent’s estate based on the size of the total estate before assets are distributed, inheritance taxes are paid by the recipient or heir based on the value of the bequest received. rebate for close relatives. The reform effort accelerated in 2023 with the approval of a full wealth taxA wealth tax is imposed on an individual’s net wealth, or the market value of their total owned assets minus liabilities. A wealth tax can be narrowly or widely defined, and depending on the definition of wealth, the base for a wealth tax can vary. exemption, placing Extremadura among the most competitive regions in this area. Income tax rates were also reduced, particularly for lower-income earners, while further changes introduced in 2026 extended inheritance tax relief to nephews and nieces in specific circumstances. Together, these reforms fundamentally changed the region’s fiscal position and allowed it to become one of Spain’s strongest improvers over the last decade.

Andalusia’s Fiscal Transformation

Andalusia experienced the second-largest improvement in Spain, rising from 16^th position in 2017 to 7^th place in 2026. Its score increased by 1.13 points, reflecting a broad-based strategy aimed at enhancing tax competitiveness.

The region pursued a series of reforms across several tax categories. Successive reductions in personal income tax rates were combined with the indexation of tax bracketsA tax bracket is the range of incomes taxed at given rates, which typically differ depending on filing status. In a progressive individual or corporate income tax system, rates rise as income increases. There are seven federal individual income tax brackets; the federal corporate income tax system is flat. and allowances to mitigate the effects of inflationInflation is when the general price of goods and services increases across the economy, reducing the purchasing power of a currency and the value of certain assets. The same paycheck covers less goods, services, and bills. It is sometimes referred to as a “hidden tax,” as it leaves taxpayers less well-off due to higher costs and “bracket creep,” while increasing the government’s spendin. At the same time, Andalusia significantly reduced inheritance taxation by introducing a 99 percent rebate and establishing a €1 million exemption for close relatives. Wealth taxation was also reformed through a rebate mechanism linked to the national solidarity tax. In addition, the regional government permanently reduced property transfer taxes and stamp duties. These changes transformed Andalusia from one of Spain’s least competitive fiscal jurisdictions into one of the top-performing regions.

Murcia and the Valencian Community Gaining Momentum

Murcia also made substantial progress during the period, climbing five positions to reach 9^th place in 2026. Its improvement was driven by reforms that reduced the burden of inheritance taxation, lowered personal income tax rates, and eased wealth taxation.

The Valencian Community followed a different path. After losing ground because of tax increases introduced in 2021 and 2022, the region began reversing course in recent years. In 2026, it regained two positions thanks to a package of reforms that included lower income tax rates, a higher wealth tax exemptionA tax exemption excludes certain income, revenue, or even taxpayers from tax altogether. For example, nonprofits that fulfill certain requirements are granted tax-exempt status by the Internal Revenue Service (IRS), preventing them from having to pay income tax. threshold, reductions in transfer and stamp duties, and broader inheritance tax relief. These measures suggest a renewed focus on improving fiscal competitiveness after a period of deterioration.

The Biggest Losers: Regions That Failed to Keep Up

Castilla-La Mancha Showed the Cost of Inaction

Castilla-La Mancha recorded the largest decline in the ranking, dropping from 8^th in 2017 to 16^th in 2026. As neighboring regions modernized their tax systems and reduced tax burdens, the region gradually lost competitiveness, illustrating how inaction can be as consequential as adopting higher taxes.

Asturias Fell Behind

Asturias also lost considerable ground, falling from 13^th to 18^th position. Although the region introduced some reforms in 2025 and 2026, these changes arrived relatively late and were not sufficient to offset years of limited policy action. As a result, Asturias continues to rank among the weakest performers, particularly in inheritance taxation, where it remains one of the least competitive jurisdictions in Spain.

Navarre Gradually Declined

Navarre’s position also weakened over the decade, falling five places to 12^th position in 2026. While recent reforms improved the treatment of lower-income taxpayers within the personal income tax system, earlier decisions relating to inheritance and wealth taxation reduced the region’s overall competitiveness. Navarre continues to rank last in the wealth tax component of the index, which significantly weighs on its overall performance.

Catalonia Remains Persistently at the Bottom

Catalonia remains the least competitive tax jurisdiction in Spain, occupying 19^th place in 2026 with a score of 4.45. Several factors explain this outcome. The region maintains relatively high marginal income tax rates, imposes one of the heaviest wealth tax burdens in the country, and applies high rates to property transfers. In addition, Catalonia levies 11 regional own taxes, approximately twice as many as most other autonomous communities. Although some reforms have been introduced over the years, they have not been sufficient to reverse the effects of previous tax increases or to significantly improve the region’s standing.

The Leaders: Madrid and the Basque Provinces

The top of the ranking continues to be dominated by Madrid and the three Basque provinces. Madrid remains the clear leader, supported by a long-term strategy based on low taxation and administrative simplicity. The region has eliminated all regional own taxes, applies a full rebate to the wealth tax linked to the national solidarity tax, maintains a highly competitive inheritance tax system, and has repeatedly reduced personal income tax rates while adjusting tax brackets for inflation.

Madrid’s leadership is particularly evident when comparing its score with those of other top-performing jurisdictions. In 2026, Madrid achieved a score of 7.12, enjoying a lead of 0.35 points over Biscay, 0.38 points over Álava and 0.52 points over Guipúzcoa. The difference becomes even more striking when compared with Catalonia, as Madrid outperforms the region by 2.67 points, underlining the substantial divergence that has emerged between Spain’s most and least competitive tax systems.

 

A Crowded Upper-Middle Tier in 2026

One of the most striking features of the 2026 RTCI is the high degree of concentration among Spain’s regions. The most competitive group below Madrid and the Basque provinces is found between 5^th and 10^th place, where score differences are exceptionally small. The Canary Islands ranks 5^th with 6.38 points, followed by La Rioja (6.36), Andalusia (6.31), Extremadura (6.26), Murcia (6.19), and Cantabria (6.18). The difference between 5^th and 10^th place is just 0.20 points, illustrating how closely matched these regions have become. In such a condensed group, even relatively modest tax reforms could result in significant changes in the ranking from one year to the next.

A clear break appears immediately after this cluster. While only 0.20 points separate the regions between 5^th and 10^th place, the gap between Cantabria in 10^th and the Balearic Islands in 11^th widens to 0.21 points. This marks the boundary between the upper-middle group and the rest of the ranking. The regions from the Balearic Islands in 11^th place to Castilla-La Mancha in 16^th place are separated by 0.36 points in total. This spread reflects a high degree of convergence among these regions and suggests that they operate with broadly similar levels of tax competitiveness.

The picture changes below Castilla-La Mancha. Despite ranking 16^th, it remains clearly ahead of the bottom-performing regions, with a gap of around 0.60 points, underscoring the divide between the middle-lower tier and the least competitive territories.

Taken together, the 2026 results reveal an increasingly segmented landscape. At the top, Madrid and the Basque provinces maintain a clear advantage over the rest of Spain. Beneath them lies a highly competitive upper-middle tier stretching from the Canary Islands in 5^th place to Cantabria in 10^th. A second, equally concentrated group extends from the Balearic Islands through Navarre, Castile and Leon, Valencia Community, Galicia, and Castilla-La Mancha in 16^th place. Finally, a lower-performing group, including Aragon, Asturias, and Catalonia, remains significantly behind the national average, creating a visible divide between the mainstream of Spain’s regional tax systems and the jurisdictions at the bottom of the RTCI.

Conclusion

The period from 2017 to 2026 shows that tax policy matters. Regions that consistently reduced tax burdens, simplified their systems, and improved inheritance and wealth tax treatment moved sharply upward in the rankings. Higher-ranked regions tend to offer tax systems that are more neutral, predictable, and investment-friendly, making them better positioned to attract economic activity, retain talent, and support long-term growth. Extremadura and Andalusia are the clearest examples of successful reform strategies, while Castilla-La Mancha, Asturias, and Catalonia illustrate the costs of stagnation or heavier taxation.

By 2026, Spain’s fiscal landscape is characterized by four distinct groups: a leading quartet headed by Madrid and the Basque provinces, a densely packed upper-middle tier stretching from the Canary Islands to Cantabria, a lower-middle tier formed by six regions, and a group of lagging regions still burdened by less competitive tax systems. The next round of reforms will likely determine whether these gaps continue to widen or begin to narrow in the years ahead.

Share this article