The Determinants of Budget Balances of the Regional (Autonomous) Governments

Abstract

This paper provides a first approach to the analysis of the determinants of public balances of regional (Autonomous) governments. These determinants have been divided into economic, political and institutional factors and into those factors specific to lower levels of government (fiscal federalism). With data referring to the years 1984-2004, the approach followed helps us to conclude that the debt and deficit ceilings established in the so-called Fiscal Consolidation Scenarios (Escenarios de Consolidacion Presupuestaria), in force during the 1990s, do not seem to have had a significant effect on the regional governments balances, while a higher degree of fiscal co-responsibility seems to be associated with a more disciplined behaviour of sub-central governments. Likewise, the analysis shows that a higher degree of fiscal decentralization is accompanied by a higher dependence of the evolution of regional governments' public budgets on the economic cycle. The implementation of fiscal policy in the regional governments seems, finally, to incorporate a strong inertial component. In any case, the small number of observations of the series used, the existence of important institutional changes during the period of analysis and the high number of explanatory variables, that is, the large number of potential determinants of public balances, oblige us to treat our results with the greatest care.