How Much Power to Tax do Regional Governments Enjoy in Spain Since the 1996 and 2001 Reforms?

Abstract

From 1979 to 1983, a new intermediate level of government was created in Spain. This article focuses on the financial aspects of political decentralization in Spain. How much power to tax do the new regional parliaments and executives enjoy? What other sources of income do they dispose of? Which rules have been settled for regulating their tax and non-tax sources of income? Has fiscal decentralization affected fiscal discipline? Are these governments now financially autonomous? These are the questions addressed. The article shows that, with the exception of the Basque Country and Navarre, regional governments were financed mainly through intergovernmental grants during the 1980s and 1990s. However, as a result of several recent reforms, their power to tax as well as their financial autonomy has increased substantially since the mid-1990s, mainly through their participation by law in the revenues of several central taxes (known as ceded taxes) upon which they also enjoy significant regulatory rights. As the ceded taxes mechanism is not a simple revenue-sharing formula in Spain, the article concludes that the Spanish model departs from both the more uniform and top-down German model and the more heterogeneous and competitive one characterizing the taxing rights of the States in US federalism.