Abstract
This chapter studies the quantitative evolution of sub-central sovereign debt in Spain over the period 2000–2011 and compares it with the evolution of central debt. As an intense process of political and fiscal decentralization has taken place since the mid eighties, the paper examines whether this drive to decentralization has been paralleled by any fiscally undisciplined behavior on the part of Spanish sub-central governments over the period considered. Some key formal legal rules and informal behavioral norms present at sub-central politics in Spain are examined, including legal controls on borrowing by sub-central governments. The empirical analysis will be based on the internationally comparable public finance figures provided by sources such as the OECD, the Eurostat and the Bank of Spain. The paper concludes that economic performance seem to be the key factor for explaining the evolution of sub-central, as well as central, public debt before and after the world financial crash. The analysis shows that in terms of the Spanish GDP the debt burden generated by sub-central governments in Spain decreased over the 2000–2007 period. However, this debt has soared from 8.5 per cent of Spanish GDP in 2007 to 16.4 per cent in 2011, adding 85 thousand millions euros (about 106 billions US dollars) to the stock of total public debt in Spain in just four years. Central government added 267 thousand millions euros (about 334 billions US dollars).
A previous version of this chapter was presented at the International Conference on Political Economy and Institutions held in May 2–4, 2012, Baiona, Spain. I thank participants in the conference, as well as anonymous referees, for helping me to concentrate on what we all consider to be the key issues.
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Notes
- 1.
S.N.A. 93 has recently been updated to S.N.A. 2009. These criteria are fully compatible with those of E.S.A. 95.
- 2.
- 3.
- 4.
- 5.
A different issue that will not be addressed in the paper is that in Spain as elsewhere there are several public services whose management has been externalized to private or public enterprises, to mixed consortiums, to public-private partnerships, etc. When these organizations belong to the business sector their activities are not directly accounted as part of the “general government” activities (central-regional-local-social security funds) but indirectly following National Account rules.
- 6.
This is not the case regarding multilevel public finance statistics provided by the IMF. That is why the percentages that follow are not strictly comparable with IMF based percentages. The OECD databases do not provide desegregated figures for social security funds debt for all countries.
- 7.
- 8.
- 9.
From a sample of 30 countries, Melo (2000) shows evidence indicating that intergovernmental fiscal relations are likely to result in a deficit bias in decentralized policy-making with soft budgets constrains.
- 10.
Besley and Coate (2003), Knight (2006, 2008), Inman and Rubinfeld (1997), Baqir (2002), or Baron and Ferejohn (2007, 2009) address these common tax-pool issues mainly referring to the USA Congress and Senate. All emphasize on how the incentives created by national financing of local public goods lead to individual congressmen or senators to try to expand own-district spending at the same time that they try to restrain aggregate spending.
- 11.
- 12.
Barro (1979) is a seminal, much cited, contribution on this line of research.
- 13.
Padoan (2009), for example, investigates the size and composition of the fiscal stimulus packages of the major economies that were implemented during 2008 in an attempt to cushion the decline on aggregate demand and growth that occurred as a result of the world financial crash.
- 14.
See also Wibbels and Rodden (2006).
- 15.
See also Allain-Dupré (2011).
- 16.
- 17.
All figures are made according to the European excessive-deficit protocol. Debt issued by Social Security Funds is included at the central level of government.
- 18.
Three years after the approval of the 1978 democratic Constitution, regional governments only managed 2.9 percent of total public expenditures. In 2006 they managed 33.1 percent. If we also take into account that total public expenditure in Spain has experienced a significant and rapid growth over those years (from 24.9 per cent of Spanish GDP in 1974 to about 40 percent on average over the 2000s.
- 19.
See Debrun and Kumar (2008).
- 20.
These Law initially passed in the central parliament were: Organic Law 8/1980 on Regional Governments Finances, Law 7/1985 and Law 38/1988 on local public finances. These laws have been reformed in several occasions since.
- 21.
In 2001, borrowing activities by Regional governments were also linked to the balanced budget principle, though some flexibility was introduced in the application of this principle in 2006, and latter on in 2009.
- 22.
Two of these significant reforms regarding borrowing issues were implemented through Royal Decree 1463/2007 (which further develops basic principles settled in the General Law for Budgetary Stability already mentioned) and Royal Decree Law 5/2009 (which contained urgent and extraordinary measures to facilitate local governments to pay their providers if some obligations remained unpaid in 2008. Local government have had three months after the approval of the 2009 Royal Decree Law for documenting these obligations that could not be paid and exceptionally apply for extra credit authorizations that will have to be repaid in six years maximum, that is in 2013).
- 23.
An extra requirement exists for local governments to freely access short term credit (repaid along the year): the total amount obtained must not exceed 30 percent of current incomes in the previous year.
- 24.
Since 2002, this source of income is becoming less significant in terms of GDP, and has suffered a further reduction for the period 2007–2014 as the twelve new countries that entered the EU in 2004 and 2007 are obtaining most of the EU funds for the new period.
- 25.
As well as to, for example, the four banks rescued in Ireland, which amounted the annual public deficit in the country to more than 30 per cent of GDP. Remember that the European Stability and Growth Pact required it to be under three per cent as a general rule, let aside the exceptions also settled.
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Toboso, F. (2013). Sub-central Governments and Debt Crisis in Spain over the Period 2000–2011. In: Schofield, N., Caballero, G., Kselman, D. (eds) Advances in Political Economy. Springer, Berlin, Heidelberg. https://doi.org/10.1007/978-3-642-35239-3_6
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