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Should Large Spanish Municipalities Be Financially Compensated? Costs and Benefits of Being a Capital/Central Municipality

Nuria Boch Roca (), Marta Espasa () and Daniel Montolio ()
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Nuria Boch Roca: University of Barcelona
Marta Espasa: University of Barcelona

Authors registered in the RePEc Author Service: Núria Bosch

Hacienda Pública Española, 2014, vol. 211, issue 4, 67-91

Abstract: We determine the costs and benefits of being a capital or central municipality, where central costs are understood to be incurred specifically as a result of the problems large municipalities located at the centre of an urban agglomeration face (including costs associated with social issues, immigration, commuting and diseconomies of scale) and capital costs result from the presence of regional and/or central government institutions in the municipality (loss of revenue or increase in expenditure because of activity substitution). However, these two qualities might also be beneficial to municipalities (resulting in a direct increase in their revenue or fiscal capacity). By estimating an equation of the expenditure needs and the fiscal capacity of Spanish municipalities with more than 75,000 inhabitants, we find that the central costs incurred by large municipalities are offset by their greater fiscal capacity, but that the same is not true for municipalities that serve as political/administrative capitals.

Keywords: Local financing; large municipalities; central and capital costs and benefits; expenditure needs; fiscal capacity. (search for similar items in EconPapers)
JEL-codes: H72 H77 R51 (search for similar items in EconPapers)
Date: 2014
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Working Paper: Should large Spanish municipalities be financially compensated? Costs and benefits of being a capital/central municipality (2013) Downloads
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Handle: RePEc:hpe:journl:y:2014:v:211:i:4:p:67-91