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Do Federal Deficits Motivate Regional Fiscal (Im)Balances? Evidence For The Spanish Case

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  • Agustín Molina†Parra
  • Diego Martínez†López

Abstract

This paper studies the vertical and horizontal interactions between federal and regional governments in terms of public deficits. Recent studies commonly restraint budget slippages to the incentives created by the institutional arrangements within a country. Alternatively, we estimate here a fiscal reaction function for the Spanish regions over the period 1995–2010, paying special attention to the impact of the federal fiscal stance on regional fiscal imbalances. Our results indicate that higher public deficits for the central government encourage larger fiscal imbalances at the regional level. This vertical interaction is interpreted in the context of yardstick competition models. We also find a significant impact from fiscal decisions taken by governments at the same decision†making tier in a specific region.

Suggested Citation

  • Agustín Molina†Parra & Diego Martínez†López, 2018. "Do Federal Deficits Motivate Regional Fiscal (Im)Balances? Evidence For The Spanish Case," Journal of Regional Science, Wiley Blackwell, vol. 58(1), pages 224-258, January.
    • Handle: RePEc:bla:jregsc:v:58:y:2018:i:1:p:224-258
    DOI: 10.1111/jors.12328
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    Cited by:

    1. Diego Martínez‐López, 2022. "Subnational borrowing and bailouts: When the federal government looks at the votes (differently) and its borrowing matters," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 24(3), pages 609-633, June.
    2. Juan S. Mora‐Sanguinetti & Rok Spruk, 2023. "Economic effects of recent experiences of federalism: Analysis of the regionalization process in Spain," Journal of Regional Science, Wiley Blackwell, vol. 63(1), pages 30-63, January.

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    More about this item

    JEL classification:

    • H62 - Public Economics - - National Budget, Deficit, and Debt - - - Deficit; Surplus
    • H72 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Budget and Expenditures
    • H77 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Intergovernmental Relations; Federalism

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