The investigation, included in the IEB’s Second Report on Fiscal Federalism in Spain, concludes that central or regional governments should compensate with 150 million Barcelona and Madrid with 384

Being the capital of Spain costs Madrid 384 million euros, and being the capital of Catalonia costs Barcelona 150 million euros. Madrid and Barcelona are followed by Seville (87 M€), Alicante (46 M€) and Valencia (46 M€) in the ranking of Spanish cities which, according to the authors, should receive compensation for the cost of being provincial capitals. Calculating the gross compensation per capita, the city council of Madrid should receive 119€ more for each resident, and the city council of Barcelona should receive 92€. These compensations are gross figures, because they do not take into account the possibility that capital or large city status may generate more income. These are some of the conclusions regarding the estimation of the costs of centrality and capital status in Spain in this study carried out by three IEB researchers (Núria Bosch, Marta Espasa and Daniel Montolio, Barcelona Economics Institute).

The main cost of centrality identified by the study is the flow of non-residents, which may overload the municipal services, accentuate social problems, and raise levels of congestion and density. The principal cost of capital status is the loss of tax revenue due to the fact that most government activities are tax-exempt, and that these activities predominate in any city that is the capital of an autonomous community.  The study concludes that cities with more than 75,000 inhabitants should have a funding system that compensates them for these costs, and that it should be separate from the system that finances the rest of municipalities. The authors also argue that this differential funding should be established via compensatory transfers from the autonomous or central governments or through special tax formulae, such as a tourism tax based on overnight stays or an increase in the taxes on consumption. In the UK, London receives compensation for its capital status.