ISP Working Paper Number 06-23

The Practice of Fiscal Federalism in Spain

Julio Lopez-Laborda, Jorge Martinez-Vazquez, Carlos Monasterio, October 2006

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Abstract:

Over the past 25 years when the rapid decentralization was taking place, Spain enjoyed high rates of economic growth and prosperity, spotted with unusually high rates of unemployment associated with rigidities in labour market institutions. In 2005, GDP per capita was $ 25,500. Over the same period of 25 years, Spain underwent a considerable increase in tax effort. In 1975 total tax revenues as a percent of GDP stood at less than 20 percent. By comparison, at that time, the OECD average country was collecting in tax revenues 31 percent of GDP. By 2002, Spain had converged to the OECD average with total tax revenues representing over 35 percent of GDP. The increases in real GDP and the considerably higher presence of the public service in the economy allowed over the past quarter century a significant jump in the provision of public services at all levels of government.