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Does regional funding drive efficiency or indebtedness? Causal evidence from the Spanish Autonomous Communities

Author

Listed:
  • Jorge Onrubia

    (Complutense Institute for International Studies (ICEI-UCM) and FEDEA)

  • Hugo Quiñones

    (Complutense Institute for International Studies (ICEI-UCM))

  • A. Jesús Sánchez-Fuentes

    (Complutense Institute for International Studies (ICEI-UCM))

Abstract

This paper aims to assess the causal relationships between public sector efficiency, public debt, fiscal revenues, and economic growth at the regional level in Spain over the period 2005–2019. Using a novel multivariate Granger causality framework with graphical modelling, we assess causal links among efficiency, debt, normative tax capacity and economic growth. Our findings reveal considerable heterogeneity across regions. Underfunded regions tend to compensate with debt, while public sector efficiency is rarely rewarded by the current system. This suggests rethinking the Autonomous Communities Funding System to include incentives for efficient management.

Suggested Citation

  • Jorge Onrubia & Hugo Quiñones & A. Jesús Sánchez-Fuentes, 2026. "Does regional funding drive efficiency or indebtedness? Causal evidence from the Spanish Autonomous Communities," Working Papers del Instituto Complutense de Estudios Internacionales 2601, Universidad Complutense de Madrid, Instituto Complutense de Estudios Internacionales.
    • Handle: RePEc:ucm:wpaper:2601
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