Foundations for Growth and Competitiveness 2026

Spain

Spain’s income gap with the most advanced OECD economies has recently narrowed, supported by resilient and steady GDP growth in the last years. Productivity growth, while still moderate, has improved and overall investment strengthened in recent years after a decade of weakness. Labour market performance has also advanced significantly, with declining yet still high unemployment rates. Significant reforms in recent years had led to strong job creation, even though employment rates remain well below those of peer countries.

Spain has shown a positive performance in hourly labour productivity since 2022, along with strong job creation, yet it still maintains a significant gap with the Euro Area and top OECD countries. Higher productivity growth and addressing population ageing require a flexible labour market and a dynamic business sector. Higher investment in research and development could accelerate innovation and productivity gains. Promoting a flexible and targeted adult learning system would help early school leavers and adults improve their skills and expand their employment options. Broadening the VAT tax base and reducing high marginal effective tax rates for low-income earners can make the system more efficient and improve incentives to work.

Economic performance

Gaps to the average of the upper half of the OECD countries

Source: Panel A: OECD, Economic Outlook database; Panel B: OECD, Labour Force Statistics database; Panel C: OECD, Economic Outlook and Productivity databases; Panel D: OECD, Economic Outlook and Annual National accounts, GFCF by assets databases.

Selected policy gaps

Source: OECD calculations based on the Foundations for Growth and Competitiveness database.

Taxation: Improve the efficiency of the tax system and overall revenues

Spain’s tax system faces several deficiencies that hinder productivity and revenue performance. It places a high burden on labour discouraging employment and job creation. Despite recent reforms, marginal effective tax rates remain high, driven by the interaction between high labour taxes and rapid benefit withdrawal, dampening work incentives, particularly for low-income workers with children and second earners. The system also exhibits a bias towards debt over equity, disincentivising investment and innovation. Several tax expenditures, such as VAT exemptions and reduced rates taper neutrality and lower the tax base.

Recommendations

✓ Rebalance the tax mix towards less distortionary taxes like VAT and environmental taxes.

✓ Gradually phase out benefits to strengthen work incentives without penalising earning gains.

Innovation: Strengthen public R&D support and foster digital adoption

Spain is among the OECD countries with the lowest share of innovative firms and exhibits low business spending on R&D compared to best performing countries. Generous R&D tax credits are a central element of Spain’s innovation support system but take up remains limited. SMEs have limited access to skilled labour and external finance. Spain has made important strides in digitalisation, but adoption of advanced digital technologies, such as data analytics, cloud computing and process automation remains low among SMEs, inhibiting efficiency gains and innovation across sectors.

Recommendations

✓ Simplify application and refund procedures to access R&D public support through a “one-stop-shop” digital platform.

✓ Promote the use of market-based financing among SMEs by encouraging public-private cooperation and connecting SMEs with capital market participants, to facilitate investment in innovation.

✓ Scale up SME’s focused digital advisory services and training, including in the use of AI, cloud infrastructure and services and data analytics.

Energy and natural capital: Expand investment in grid infrastructure

Spain faces growing economic and fiscal costs from climate-related disasters. Spain’s adaptation policy is well aligned with best practices, but its implementation remains uneven at the regional and local level, while underinvestment in preventive measures exacerbates vulnerabilities. Spain has significantly increased renewable electricity generation, accounting for more than half of the mix in 2023, while lowering wholesale electricity prices. Some measures are being implemented to face curtailment, grid congestion and delays in permitting.

Recommendations

✓ Enhance national-regional coordination to harmonise prevention policies and reinforce municipal capacities.

✓ Scale up investments in resilience infrastructure and disaster preparedness.

✓ Continue streamlining permitting processes and accelerating investment in grid infrastructure, including interconnections, to address congestion and curtailment.

Human capital: Support early leavers and promote adult learning and upskilling

Grade repetition rates and early school leaving remain significantly above OECD average, even after recent improvements. Enrolment in vocational education and training (VET) has significantly increased, but the share of students in VET and at upper secondary education level remains below the OECD average, while the educational system could be better connected with the labour market. Adults perform poorly in reading, numeracy and problem-solving skills compared to other European OECD members, despite similar participation rates in education and training.

Recommendations

✓ Provide flexible vocational education plans with a special focus on dual vocational education options to make education more relevant and appealing and give second chances to early leavers from education and to adults who need to upgrade their skills.

✓ Improve early identification of at-risk students.

✓ Promote a flexible and targeted adult learning system by establishing procedures to validate professional competences acquired in the workplace, allowing adults to have their competencies recognised and build individualised learning pathways.

Labour mobility and participation: Enhance active labour market policies

Spain’s labour market has shown strength in recent years, with declining unemployment and temporary jobs to historically low levels. However, Spain’s employment rate remains below the EU and OECD averages, while unemployment rates remain high, especially among youth. Despite recent efforts to improve unemployment assistance and public employment services, several factors continue to weigh on employment, including mismatches between skills and job needs, and low participation in job searching, training, and employment programs.

Recommendations

✓ Further strengthen the role of regional public employment offices through digitalisation, more staff, and enhanced collaboration with the private sector.

✓ Expand flexible and distance-learning options to accommodate varied schedules and needs to make training and upskilling more accessible to a wider range of individuals.

Recent progress on structural reforms

The government has introduced several structural reforms backed by EU funds and lined up with the Recovery, Transformation and Resilience Plan. In 2021 and 2022, key reforms were enacted to strengthen the labour market, modernise the VET system, improve the business environment – notably to support SMEs – and boost digitalisation. Additional reforms aimed at making the immigration system more flexible, facilitating the expansion of housing supply and supporting social housing investment accelerated in 2024 and 2025.