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The IEB presents the fourth update of the “Autonomous Financing Maps”. The current financing system continues to hurt Madrid, the Balearic Islands, Catalonia and Valencia

  • Madrid, the Balearic Islands and Catalonia generated tax revenues per capita well above average, but ended up with resources below the average.
  • The case of Valencia is different, however, as the region generated revenues below the average, and after the application of the financing model, based on the index, their resources were reduced below their contribution.

 

Barcelona, XX October 2019. Madrid, the Balearic Islands, Catalonia and Valencia were the communities most disadvantaged by the autonomous financing system based on the latest data available from the year 2017. Broadly speaking, the same pattern has recurred since the current model began to be applied in 2009.

This is reflected once more in the fourth update of the Autonomous Financing Map published by the Barcelona Institute of Economics (IEB). This tool shows the evolution of the available resources per capita of each territory as the equalisation mechanisms and adjustment funds of the model are applied. In 2017, the Community of Madrid had average tax revenues amounting to 3,306 euros per capita, but after the application of the model funds, resources fell to an average of 2,516 euros.

In the case of the Balearic Islands, the application of all the model funds resulted in a 14.7% reduction in tax revenues per capita. In 2017, the Balearic community generated an average of 2,949 euros in tax revenues per capita, and was left with 2,516 euros.

Catalonia generated total tax revenues of 2,807 euros per habitant on average during 2017, and ended with 2,513 euros after equalisation and the application of the funds of the system.

But one example of the arbitrariness in the final available resources resulting from the current funding system is the contrasting situation in which communities end up with a somewhat similar level of tax resources as before the implementation of the equalisation and adjustment funds. Such an example is the Community of Valencia which began with 2,255 euros per capita, and resulted with 2,373 euros after passing through the financing system. The baseline for a territory such as Galicia starts lower, with funds amounting to 1,927 euros per capita, then rises up to 2,531 euros after the adjustments from the model.

 

The Financing Maps provided by the IEB shows that some of the territories with more fiscal capacity per capita end up with a level of resources lower than the average. On the one hand, it is evident that the mechanism of equalisation, known as the fundamental public services guarantee fund, correctly meets the goal of closing the gap between communities with greater and lower fiscal capacity, without altering the initial order. But on the other, the application of the sufficiency, competitiveness and cooperation funds creates distortions in the distribution—something that, for IEB researchers, would justify a “model review.”

 

Extremadura, Galicia and Castile-La Mancha, the communities that benefit the most

Looking at the communities benefiting the most from the system, we find Extremadura which generated lesser tax revenues than the national average, and ended with tax revenues per capita much higher than this average under the current financing system. To illustrate, the Extremadura community had tax revenues of 1,586 euros per capita on average, and later was raised to 2,720 euros once the funds of the model had been applied. This is a difference of about 40 points (when referencing averages to an index with a base value of 100) between what is collected and what is finally received.

Behind Extremadura, we find Galicia and Castile-La Mancha. Galicia had an average of 2,531 euros per capita, with an average increase in available resources of about 31.4%. Castile-La Mancha had an average of 2,465 euros per capita, with an average increase in available resources of about 34.8%. The difference, in favor of these territories, was about 18 and 19 points, respectively.

Leaving aside the differences between the tax resources obtained and the resources allocated, the three communities that receive the largest quantity of resources are – in this order – Cantabria, La Rioja and Extremadura.

 

Evaluación y análisis actualizado del modelo

The latest edition of the IEB’s Autonomous Community Financing Map includes the consolidation of a tool that provides a system of evaluation and updated analysis of the current model of autonomous community financing, having been in operation since 2009. Through the different sections of the website, the user can gain knowledge of the entire tax collection norms ceded by the central government to each autonomous community, the resources that result from their participation in the equalization mechanism (guarantee fund of basic public services) and from the model adjustment funds (sufficiency fund, competitiveness fund and cooperation Fund).

 

IEB, an internationally recognised research centre

The Barcelona Institute of Economics (IEB) is a research centre whose goals are to promote and disseminate work in economics and to contribute to the debate on economic policy decision-making.

Founded in 2001 within the University of Barcelona, the IEB received a major boost in 2008 with the creation of the IEB Foundation on whose board of trustees include the participation of private companies (Abertis, La Caixa, Naturgy Energy, Saba), public institutions (the Barcelona City Hall) and universities (the University of Barcelona and the Autonomous University of Barcelona), showcasing an excellent illustration of collaboration between the public-private sectors and the academe. In the development of various activities, the Institute for Fiscal Studies, the Barcelona Provincial Council, and Agbar also collaborate regularly with the IEB.

Due to a track record of research excellence and collaboration between universities, the public and private sectors, the IEB has managed to become an internationally recognised research centre.

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