Fiscal Decentralization and Economic Growth in Spain

Abstract

This article analyzes the contribution of the Spanish fiscal decentralization process to economic growth at both the aggregate and regional levels. Our main conclusion is that at the aggregate level, the process of decentralization of responsibilities to autonomous communities (ACs) has not had significant effects on Spanish economic growth when fiscal decentralization is measured in terms of revenue and investment shares, while a statistically significant negative effect is found when decentralization is measured through expenditure shares. When the study is carried out from a regional point of view, we find that fiscal decentralization at the AC level has a positive effect on economic growth for those ACs with the highest levels of fiscal and institutional decentralization, but the opposite effect is found for those ACs with the lowest levels of competencies. Decentralization at the local level has a significant positive effect for ACs with complete fiscal autonomy.