The impact of soft budget constraint on the fiscal co-responsibility of the autonomous communities in SpainThe case of extraordinary liquidity funds (2012-2019)

  1. Santiago Calvo López 1
  2. María Cadaval Sampedro 1
  1. 1 Universidade de Santiago de Compostela
    info

    Universidade de Santiago de Compostela

    Santiago de Compostela, España

    ROR https://ror.org/030eybx10

Revista:
Hacienda Pública Española / Review of Public Economics

ISSN: 0210-1173

Ano de publicación: 2022

Número: 240

Páxinas: 151-190

Tipo: Artigo

Outras publicacións en: Hacienda Pública Española / Review of Public Economics

Resumo

According to the Second Generation of Theories of Fiscal Federalism, if subcentral governments can increase the level of spending without taking responsibility for the cost due to the existence of a soft budget constraint, incentives are created for financially irresponsible behavior. Since 2012, the central government in Spain has created various funds with the aim of improving the liquidity of the Autonomous Communities, but their design has meant that the latter can obtain resources at little cost. This paper tests the hypothesis under which the regions that have received more extraordinary liquidity funds have had a less prudent fiscal behavior, finding no evidence of it. The level of unemployment, the financial insufficiency and the electoral cycle of the budget are the determining factor in explaining greater non-compliance with deficit and debt targets and higher deficit and debt growth rates.

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