On 15 April, the Barcelona Economics Institute (IEB) presented its first “Report on Fiscal Federalism in Spain ‘09” and its first international report “The IEB World Report on Fiscal Federalism ‘09” prepared by the Chair in Fiscal Federalism at the University of Barcelona. The two documents can be downloaded from the IEB website on payment of a fee

These reports will be published annually; focusing on specific topical issues, they will include contributions from experts at the IEB or other universities, research centres, and government institutions.

The 2009 reports were presented at an official event held in the Palau Robert in Barcelona, which was attended by the IEB researchers Núria Bosch and Albert Solé, editors of the reports, and Joaquim Coello Brufau, President of the Barcelona Economics Institute Foundation, and was presided over by Antoni Castells, Minister for Economics and Finance in the Catalan government.

Coello thanked the ICO Foundation, the Institute of Fiscal Studies and the Institute of Autonomous Community Studies for their cooperation in setting up the Chair in Fiscal Federalism at the University of Barcelona. He stressed that the IEB Foundation is “a clear example of cooperation between the university, business, and public institutions”.

Mr Castells congratulated the IEB on the publication of these two new reports which, in his view, fully justify “the creation of the Chair in Fiscal Federalism” and which are sure to become “reference documents both in Spain and internationally”. The minister also described the report, the first academic assessment of the new model of funding for the Autonomous Communities, as an “important step forward”. Referring to the model itself, Mr Castells stated that it “would have benefited from a greater academic consensus, but this  was overshadowed by political considerations”.

The Report on Fiscal Federalism in Spain ‘09

The topic chosen for the first national report was the “New funding model for Autonomous Communities” presented in July 2009, and approved by the Spanish parliament last December, after lengthy negotiations between the central government and the Autonomous Communities and after a long political and social debate, especially following the approval of the new Statute of Autonomy of Catalonia in 2006. The report’s ‘Forum’ section includes the views of four experts from the IEB and from other institutions on the new funding model.

This  document, the first academic evaluation of the model, includes contributions from Núria Bosch, IEB researcher; Julio López Laborda, Professor of Public Economics at the University of Zaragoza; Jesús Ruiz-Huerta and Miguel Ángel García, professors at the Rey Juan Carlos University, and Santiago Lago Peñas, lecturer at the University of Vigo.

According to Núria Bosch, IEB researcher and co-editor (with Albert Solé-Ollé) of the report, all the authors note several positive aspects of the new model, such as the additional contribution of resources made by the State, the distribution of these resources, the increase in tax autonomy, the increase in the ACs’ jurisdiction regarding income tax or the system to reduce the differences between Autonomous Communities in the provision of fundamental public services.

The experts also agree in underlying some of the questions that remain open: for example, they regret that the new model does not cover the jurisdiction to impose VAT, and warn that the Fondo de Suficiencia Global and the Fondo de Convergencia make the model excessively complex. Other questions which, in the experts’ opinion, remain unresolved are the differences in the results of the foral model and the standard model.
 
As well as this analysis of the funding model, the Report on Fiscal Federalism in Spain ‘09 deals with other topical issues such as the situation of municipalities in the present recession, an evaluation of the State Local Investment Fund, the decentralization of wealth taxes in Spain, the situation of public companies in the Autonomous Communities, and efficiency in the delivery of local public services.

IEB’s World Report on Fiscal Federalism ‘09

The IEB World Report on Fiscal Federalism ‘09 is published in English. According to the editor, IEB researcher Albert Solé, “even though the subjects addressed are also of interest in this country, the report’s outlook is clearly international and aims to establish the IEB as a reference institution throughout the world in the area of fiscal federalism”.

The main theme chosen for this report is the situation of subnational finances in times of recession. The report includes contributions from Robert P. Inman (University of Pennsylvania), Teresa Ter-Minassian (ex Head of the IMF Fiscal Affairs Dept.) and Thiess Buettner (Ifo Institute and University of Munich). The report will also examine questions such as the subnational dimension of stimulus packages, the effects of the crisis on the finances of the world’s largest cities, and the increase in decentralization processes worldwide.

One of the conclusions of the report is that the subcentral budget crisis has had major effects on the subcentral deficit: for instance, the reduction in tax receipts, the reduction of income and transfers, the increase in social spending, the increase in bail-outs for financial and non-financial firms, and the losses deriving from poor financial investments.

The experts also express their concern that subcentral deficits may create problems for the central governments’ stabilization policies; they warn that the adjustment of subcentral budgets is negative in a situation of crisis, but stress that subcentral deficits are not a good solution either. All the authors agree on the importance of intergovernmental transfers for stabilizing subcentral budgets and of adequate design of the transfers.

The experts recommend the adoption of precautionary measures during the expansive phase such as the accumulation of surpluses. They applaud the prominent role of intergovernmental transfers in economic stimulus packages, and consider them to be the fastest, most effective instrument for fighting the recession, in particular in the case of capital transfers to local governments.