Should fiscal equalisation and regional policy goals and tools be disentangled?

Julio López-Laborda, Andoni Montes-Nebreda and Jorge Onrubia

Regional Studies, 2025, vol. 59, issue 1, 2371146

Abstract: We exploit the mixture of policy goals and instruments of the Spanish regional funding system (RFS) to test whether equalisation transfers impact regional convergence. Using fixed effects and two-stage least squared estimation with instrumental variables (2SLS-IV) models and data for 15 regions for the period 2002–18, we find that both fiscal equalisation and regional transfers show a significant concave convergence-promoting effect, which is larger for regional transfers. However, funding excess/deficit caused by overlapping tools and objectives in the RFS does not have a significant relationship with regional convergence. These results are in line with the Tinbergen rule, since it is more cost-effective to promote regional convergence through regional policy funds.

Date: 2025
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DOI: 10.1080/00343404.2024.2371146

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