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Fiscal Responsiveness to Public Debt: An Analysis of Regional Debt Limit Uncertainty in Spain

Joan Maria Mussons Olivella ()
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Joan Maria Mussons Olivella: Generalitat de Catalunya and Universitat de Barcelona

Hacienda Pública Española / Review of Public Economics, 2020, vol. 233, issue 2, 55-83

Abstract: The present analysis addresses the primary balance response to the debt of Spanish Autonomous Com¬munities (ACs) from 1987 to 2015. Overall, the results provide evidence of a nonlinear relationship between these variables, which points to a situation of fiscal fatigue and reduced fiscal space. In 2015 the regional debt ratio stood at 26.8% of Gross Value Added, slightly above our lower estimate for the debt limit (24%) and well below the upper estimate (37%). We obtain lower debt limit thresholds when controlling for the extraordinary liquidity support measures provided by the central government. A reduced fiscal space in ACs calls for measures to ensure a sustainable debt trajectory and regain some room to deal with potential negative shocks.

Keywords: Public debt; debt sustainability; debt limit; uncertainty; fiscal reaction function (search for similar items in EconPapers)
JEL-codes: E62 H62 H63 H74 (search for similar items in EconPapers)
Date: 2020
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