Open AccessThe Impact of Soft Budget Constraint on the Fiscal Co-responsibility of the Autonomous Communities in Spain: The Case of Extraordinary Liquidity Funds (2012-2019)
Author(s) -
Santiago Calvo,
María Cadaval Sampedro
Publication year - 2022
Publication title -
hacienda pública española/hacienda pública española
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.185
H-Index - 12
eISSN - 2386-4176
pISSN - 0210-1173
DOI - 10.7866/hpe-rpe.22.1.6
Subject(s) - market liquidity , incentive , constraint (computer aided design) , economics , debt , budget constraint , monetary economics , deficit spending , unemployment , liquidity constraint , government (linguistics) , fiscal federalism , macroeconomics , market economy , decentralization , microeconomics , mechanical engineering , linguistics , philosophy , engineering
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.