Fiscal Autonomy and Fiscal Sustainability: Subnational Taxation and Public Indebtedness in Contemporary Spain

Abstract

This study assesses fiscal sustainability in contemporary Spain at the regional level. Spain consists of 17 autonomous regions, two fiscal regimes differing in taxing autonomy, and two path-dependent types of communities with more and less legislatively recognized autonomy. Three of the 17 autonomies do neither have any fiscal power over ceded taxes nor the option to grant tax credits. This structure allows us to apply panel unit root and stationarity tests to sub-samples of autonomies to check for fiscal sustainability in the sense of adhering to an intertemporal budget constraint. Only for the clear-cut fiscally autonomous regimes of Navarro and Basque Country, endowed with ample statutory privileges in the collection of taxes, time series properties accord with the notion of sustainability based on expected-value budget constraints.