DO FEDERAL DEFICITS MOTIVATE REGIONAL FISCAL (IM)BALANCES? EVIDENCE FOR THE SPANISH CASE

Agustín Molina†Parra and Diego Martínez†López
Authors registered in the RePEc Author Service: Diego Martínez

Journal of Regional Science, 2018, vol. 58, issue 1, 224-258

Abstract: This paper studies the vertical and horizontal interactions between federal and regional governments in terms of public deficits. Recent studies commonly restraint budget slippages to the incentives created by the institutional arrangements within a country. Alternatively, we estimate here a fiscal reaction function for the Spanish regions over the period 1995–2010, paying special attention to the impact of the federal fiscal stance on regional fiscal imbalances. Our results indicate that higher public deficits for the central government encourage larger fiscal imbalances at the regional level. This vertical interaction is interpreted in the context of yardstick competition models. We also find a significant impact from fiscal decisions taken by governments at the same decision†making tier in a specific region.

Date: 2018
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https://doi.org/10.1111/jors.12328

Related works:
Working Paper: Do federal deficits motivate regional fiscal (im)balances? Evidence from the Spanish case (2015)
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Persistent link: https://EconPapers.repec.org/RePEc:bla:jregsc:v:58:y:2018:i:1:p:224-258

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