Does regional funding drive efficiency or indebtedness? Causal evidence from the Spanish Autonomous Communities

Jorge Onrubia, Hugo Quiñones and A. Jesús Sánchez-Fuentes
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Jorge Onrubia: Complutense Institute for International Studies (ICEI-UCM) and FEDEA
Hugo Quiñones: Complutense Institute for International Studies (ICEI-UCM)
A. Jesús Sánchez-Fuentes: Complutense Institute for International Studies (ICEI-UCM)

No 2601, Working Papers del Instituto Complutense de Estudios Internacionales from Universidad Complutense de Madrid, Instituto Complutense de Estudios Internacionales

Abstract: This paper aims to assess the causal relationships between public sector efficiency, public debt, fiscal revenues, and economic growth at the regional level in Spain over the period 2005–2019. Using a novel multivariate Granger causality framework with graphical modelling, we assess causal links among efficiency, debt, normative tax capacity and economic growth. Our findings reveal considerable heterogeneity across regions. Underfunded regions tend to compensate with debt, while public sector efficiency is rarely rewarded by the current system. This suggests rethinking the Autonomous Communities Funding System to include incentives for efficient management.

Keywords: Granger Causality; Public Sector Efficiency; Regional funding system; regional indebtedness; Spanish Autonomous Communities. (search for similar items in EconPapers)
Pages: 41 pages
Date: 2026
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