Foundation for Applied Economics Research, Fedeapublished a study analyzing the behavior of regional governments in recent years regarding their perceptions of public spending and debt sustainability. The study by Carmen Marín (FEDEA) and Diego Martínez (Pablo Olavide University and FEDEA) offers an approach to the CCAA’s preferences when defining fiscal policy.
And the results differ from each other; C. Valenciana, the worst financed country with a higher percentage of debt, at one end of the analysis. “Traditionally, fiscal policy models assume that fiscal policy pursues two objectives with a certain tension between them: mitigating the effects of the economic cycle (macroeconomic stability) and ensuring the sustainability of public debt (sustainability). However, in the case of regions, a third goal may also be considered: ensuring a certain level of public expenditure per capita (ensuring expenditure), which contextualises the report known today.
The study extends the traditional theoretical framework to include the third objective. The resulting model is calibrated with data from the Spanish CCAA corresponding to: 2013-2022 periodIn order to approximate the declared preferences of each regional government regarding the relative weight of the three objectives mentioned above.
The results show that, with the exception of 2020 (which does not fit the model well), the Autonomous Communities group gives the greatest relative weight to the provision of a particular service. level of public expenditure per capita (around 40-60%), while the weight of macroeconomic stability will be slightly below 40%, taking previous studies as a reference. Finally, debt sustainability will be the least priority objective, with a weighting of between 20% at the beginning of the period and values very close to zero in some specifications and in the years immediately before the pandemic.
Thus, in the first group of autonomous governments (consisting of) Balearic Islands, Castilla-La Mancha, Murcia, Catalonia and the Valencian CommunityWhile the public expenditure target had a weight of around 70 percent, the debt sustainability target generally remained below 10 percent. The authors estimate that, given high debt levels, assistance from extraordinary FLA-type financing mechanisms maintains favorable conditions. veiled rescue This weakened the sensitivity of fiscal policies to regional debt levels.
A second group of autonomies (Andalusia, Aragon, Asturias, Cantabria, Castilla y León, Galicia, Extremadura and La Rioja) followed a very similar profile to that outlined above for the subsector as a whole. Note that during this period some of these Autonomous Communities experienced changes in government or maintained very similar fiscal policy profiles despite being governed by parties with different ideologies. This leads us to minimize the influence of ideology on the design of regional fiscal policy.
debt worry
Finally, there is a third group of communities (Canary Islands, Basque Country, Navarra and Basque Country). Madrid) Here sustainability concernd of public debt reaches values around 30-40 percent. The first three are relatively well financed and this has obvious consequences for the starting levels of per capita public expenditure, so the focus is on the sustainability of their debt. The Community of Madrid, on the other hand, does not have above-average financing, but it values debt sustainability preferences even higher than public spending.