The gap in GDP per capita relative to the upper half of OECD countries remains large, reflecting differences both in labour productivity and labour utilisation. Total factor productivity growth has been sluggish.
Income inequality has increased since 2007 and remains above the OECD average, partly driven by high rates of unemployment and the fall in incomes of households at the bottom of the income distribution. Spain's emissions of greenhouse gases per capita are below the OECD average.
Progress on Going for Growth 2017 priorities has been limited. Changes to corporate and labour taxes have made the tax system more growth-friendly, but there remains ample room to improve the progressivity of the tax system. Reforms of activation policies have continued throughout 2017-18, but implementation is lagging. While more should be done in this area, especially to help the long-term unemployed, recognising the reforms already taken this priority has been replaced with a new priority on innovation. This is justified by weak productivity growth and the substantial decline in innovation spending during the crisis.
Boosting inclusive growth will hinge on a higher employment and productivity gains. Productivity growth can be raised via shifting the tax burden to less distortive taxes, bolstering competition, strengthening educational outcomes and boosting innovation performance. Increasing labour mobility and improving access to vocational education would lower labour market inequalities and boost skills.
