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DO FEDERAL DEFICITS MOTIVATE REGIONAL FISCAL (IM)BALANCES? EVIDENCE FOR THE SPANISH CASE
Author(s) -
MolinaParra Agustín,
MartínezLópez Diego
Publication year - 2018
Publication title -
journal of regional science
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.171
H-Index - 79
eISSN - 1467-9787
pISSN - 0022-4146
DOI - 10.1111/jors.12328
Subject(s) - yardstick , context (archaeology) , economics , incentive , government (linguistics) , competition (biology) , fiscal imbalance , fiscal federalism , fiscal adjustment , fiscal union , central government , public economics , fiscal policy , macroeconomics , economic policy , local government , decentralization , political science , microeconomics , market economy , public administration , geography , ecology , linguistics , philosophy , geometry , mathematics , archaeology , biology
This paper studies the vertical and horizontal interactions between federal and regional governments in terms of public deficits. Recent studies commonly restraint budget slippages to the incentives created by the institutional arrangements within a country. Alternatively, we estimate here a fiscal reaction function for the Spanish regions over the period 1995–2010, paying special attention to the impact of the federal fiscal stance on regional fiscal imbalances. Our results indicate that higher public deficits for the central government encourage larger fiscal imbalances at the regional level. This vertical interaction is interpreted in the context of yardstick competition models. We also find a significant impact from fiscal decisions taken by governments at the same decision‐making tier in a specific region.