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Institutional and economic determinants of Sub-national public debt in Spain

Mar Delgado-Téllez (), Pablo Hernández de Cos and Javier Pérez ()

No 10518, EcoMod2017 from EcoMod

Abstract: We analyze the evolution and the determinants of sub-sovereign public debt in Spain, focusing on regional governments' debt determinants, including of liabilities accounted for outside the extant definition of EDP public debt. Spain offers an interesting case study for a number of reasons. First, the country has witnessed successive waves of fiscal decentralization that have increased the amount of public services provided directly by sub-national governments together with increased fiscal co-responsibility (tax autonomy). Second, this decentralization process took place in a period in which a number of supra-national and national fiscal rules were put in place in the country. Third, while fiscal rules provide some explicit coordination among the different levels of government, there is also a high degree of market-imposed discipline, as most regional government's debt is regularly scrutinized by rating agencies. The empirical analysis is carried out using the available annual data for the period 1995-2015. The incidence of the different determinants on the changes in public debt will be tested by means of a standard econometric model. The estimation is carried out by the Generalized Method of Moments (Arellano and Bond, 1991), using as instruments lagged regressors as well a large number of control variables. The preliminary results show a strong presistency of regional debt. As expected the evolution of debt is reduced by the economic growth, as well as by the strength of fiscal rules. It doesn't seem to be affected by any of the political variables considered. Interest rates evolution seem to have a significant impact on debt, thus signalling that market discipline may be working. And finally, public companies debt doesn't seem to have a direct impact on debt evolution.

Keywords: Spain; Regional modeling; Finance (search for similar items in EconPapers)
Date: 2017-07-04
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