ISP Working Paper Number 06-10

Regional Decentralization in Spain: Vertical Imbalances and Revenue Assignments

Julio López Laborda and Carlos Monasterio Escudero, January 2006

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Abstract:

This chapter provides an overview of the key issues in public economics arising from the process of territorial decentralization that has taken place in Spain since the restoration of democracy and ratification of the Constitution of 1978, which resulted in the emergence of the “ Autonomic State ”. The first section of this chapter focuses on the assignment of competencies between central and regional levels of government and explains in detail the methodology used to quantify the “effective cost” of the services devolved to the Autonomous Communities (hereinafter ACs). We have paid special attention to health services, which are the most significant item for regional budgets in quantitative terms. The second section deals with revenue assignment and describes the two systems established to finance regional expenditures. These two systems are the “ordinary system” (régimen común), which is applied in the majority of the ACs, and the “charter system” (régimen foral), which is based on the historical rights accorded to the Basque Country and Navarre . The last section gives an appraisal of the decentralization process and notes some emerging issues of debate.