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Fiscal Responsiveness to Public Debt: An Analysis of Regional Debt Limit Uncertainty in Spain

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  • Joan Maria Mussons Olivella

    (Generalitat de Catalunya and Universitat de Barcelona)

Abstract

The present analysis addresses the primary balance response to the debt of Spanish Autonomous Com¬munities (ACs) from 1987 to 2015. Overall, the results provide evidence of a nonlinear relationship between these variables, which points to a situation of fiscal fatigue and reduced fiscal space. In 2015 the regional debt ratio stood at 26.8% of Gross Value Added, slightly above our lower estimate for the debt limit (24%) and well below the upper estimate (37%). We obtain lower debt limit thresholds when controlling for the extraordinary liquidity support measures provided by the central government. A reduced fiscal space in ACs calls for measures to ensure a sustainable debt trajectory and regain some room to deal with potential negative shocks.

Suggested Citation

  • Joan Maria Mussons Olivella, 2020. "Fiscal Responsiveness to Public Debt: An Analysis of Regional Debt Limit Uncertainty in Spain," Hacienda Pública Española / Review of Public Economics, IEF, vol. 233(2), pages 55-83, June.
    • Handle: RePEc:hpe:journl:y:2020:v:233:i:2:p:55-83
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    Cited by:

    1. Alberto Vaquero-García & María Cadaval-Sampedro & Santiago Lago-Peñas, 2022. "Do Political Factors Affect Fiscal Consolidation? Evidence From Spanish Regional Governments," SAGE Open, , vol. 12(1), pages 21582440221, March.
    2. Maciej WYSOCKI & Cezary WÓJCIK, 2021. "Fiscal Sustainability in Poland: How Did the Public Policy Shift of 2016–2019 Impact the Country’s Long-Term," Ekonomista, Polskie Towarzystwo Ekonomiczne, issue 6, pages 777-798.
    3. Carmen Marín-González & Diego Martínez-López, 2024. "Fiscal stabilisation, debt sustainability and public spending in subnational governments. The case of the Spanish regions," Studies on the Spanish Economy eee2024-02, FEDEA.

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    More about this item

    Keywords

    Public debt; debt sustainability; debt limit; uncertainty; fiscal reaction function;
    All these keywords.

    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • H62 - Public Economics - - National Budget, Deficit, and Debt - - - Deficit; Surplus
    • H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management; Sovereign Debt
    • H74 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Borrowing

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