Madrid and Basque Country top Fundalib's 2025 fiscal competitiveness ranking

2025 Regional Fiscal Competitiveness Index: Madrid leads, Catalonia and Extremadura trail behind

Madrid comes out on top once again. The 2025 Regional Fiscal Competitiveness Index (IACF), produced by the Foundation for the Advancement of Liberty (Fundalib), ranks the Community of Madrid as the region with the most competitive tax system in Spain, closely trinc by the Basque Country. At the other end, Catalonia, Extremadura and the Valencian Community occupy the bottom places in a ranking that measures tax burden, regulatory load and room for manoeuvre over devolved taxes.

The document, spread across social media and economic platforms, has reignited the old debate about the tax war between Spain's autonomous regions. While some regions cut taxes to attract high earners and wealth, others maintain punitive rates that drive taxpayers away. The question hanging over the index is no trivial one: how long can a model that punishes saving and rewards spending be sustained?

What exactly does the IACF measure, and why does it matter

The IACF is not just a ranking of tax rates. It analyses each region's real capacity to decide on its devolved taxes —income tax, wealth tax, inheritance tax, property transfers— and compares it with the effective burden borne by households and businesses. Madrid comes out unbeatable in almost every category: rebates on inheritance and gift tax, reduced income tax rates and an openly declared policy of attracting investment.

The Basque Country, thanks to its foral regime (a historic system granting it fiscal autonomy), enjoys a level of tax autonomy that no other region can replicate. Its position in the index does not depend on recent decisions, but on a historical framework that allows it to compete on different terms. Still, the result is the same: a lower tax burden than the average for certain income brackets.

On the other side of the scale, Catalonia appears as the paradigmatic example of what the index calls fiscal unsustainability. High wealth and inheritance tax rates, little room for manoeuvre and a tax agency of its own that, according to the authors, adds layers of complexity. Extremadura and the Valencian Community complete the bottom group, though for different reasons: lack of a tax base and dependence on state transfers.

The tax war between regions: who wins and who loses

The publication of the IACF 2025 has coincided with a steady drip of news about tax scrutiny and revenue-raising zeal. Over the same period, Spain's tax authority Hacienda made headlines for refusing to join the legal case over Zapatero's jewellery, citing "insufficient evidence", while the union Gestha revealed that the tax agency AEAT peine and immediately suspended inspections of the former prime minister to shield the case from statutory time limits. The contrast is striking: while some regions compete to attract taxpayers, the central state is reinforcing its revenue-raising machinery.

Some argue that regional fiscal competitiveness is the only real tool regions have to escape the vicious circle of tax rises and capital flight. Against it weighs the argument that such competition generates fiscal dumping and strains the funding of public services. The most optimistic calculation assumes that taxpayer mobility rewards efficient regions; the pessimistic scenario starts from the premise that only high earners move, leaving behind a poorer tax base.

The index also yields an uncomfortable finding: regions that cut taxes do not always see their total revenue rise. Madrid does. Others do not. The relationship between fiscal competitiveness and economic growth is not automatic, and the IACF reflects it with nuances that headlines simplify.

The Catalan case and the trap of limited fiscal autonomy

Catalonia is the most frequently cited example of the costs of an expansive tax policy. With some of the highest wealth tax rates in Spain and an inheritance tax that has been the subject of political litigation for years, the region is steadily losing high-income taxpayers. The IACF quantifies it: its room for manoeuvre over devolved taxes is limited, but where it can raise taxes, it does.

The paradox is that Catalonia collects less than it could if it maintained competitive rates. The flight of wealth is not a hypothesis: it is a flow documented in the reports of the Catalan tax agency itself. The index states this without mincing words, and therein lies part of its usefulness: it turns into numbers what until now was political intuition.

Extremadura and the Valencian Community, by contrast, have no room to compete. Their dependence on state transfers condemns them to a secondary role on the fiscal board. The IACF places them at the bottom not by their own choice, but for lack of tools.

What the index does not say, and the debate that remains open

The IACF 2025 is a snapshot, not a film. It does not measure the long-term effects of tax policies or the quality of the public services they fund. One region can be fiscally competitive and have poor healthcare; another can have high taxes and an excellent public education system. The index does not go there.

Nor does it answer the key question: is fiscal competitiveness an end in itself or a means to attract investment? The authors at Fundalib are clear —it is a means— but the empirical evidence on its real impact on growth is more debatable than the ranking suggests.

With these differentials, the internal migration of taxpayers should be massive. It remains marginal. Nobody can quite explain why.