How Much Power to Tax do Regional Governments Enjoy in Spain Since the 1996 and 2001 Reforms?

Abstract

From 1979 to 1983, a new intermediate level of government was created in Spain. This article focuses on the financial aspects of political decentralization in Spain. How much power to tax do the new regional parliaments and executives enjoy? What other sources of income do they dispose of? Which rules have been settled for regulating their tax and non-tax sources of income? Has fiscal decentralization affected fiscal discipline? Are these governments now financially autonomous? These are the questions addressed. The article shows that, with the exception of the Basque Country and Navarre, regional governments were financed mainly through intergovernmental grants during the 1980s and 1990s. However, as a result of several recent reforms, their power to tax as well as their financial autonomy has increased substantially since the mid-1990s, mainly through their participation by law in the revenues of several central taxes (known as ceded taxes) upon which they also enjoy significant regulatory rights. As the ceded taxes mechanism is not a simple revenue-sharing formula in Spain, the article concludes that the Spanish model departs from both the more uniform and top-down German model and the more heterogeneous and competitive one characterizing the taxing rights of the States in US federalism.

Keywords:

• Spanish regional governments
• power to tax
• shared taxes
• financial autonomy
• fiscal discipline

Acknowledgements

The authors thank Thrainn Eggertsson, Allan Schmid, Ian Kirkpatrick and Carlos Ochando for comments on previous drafts of these ideas, which were recently presented at the 2006 RSAI and the 2008 ERSA conferences held in Jersey and Liverpool. Comments by Graeme Roy on the ERSA paper were also helpful.

Notes

For similar statements, see Elazar (1998: 21) and Peces-Barba (2002: 73). See also Castells (2001).

The Constitution also mentions explicitly (Arts 155.1 and 155.2) the possibility to reverse this delegation, or even suspend autonomy if extraordinary circumstances take place.

On the decentralization of policy tasks, see Toboso (2005, 2006).

It is worth mentioning here that Catalonia is constitutionally subject to the rules of the ‘common financial system’ whatever the principles incorporated in the new, revised Statutory Law for Catalonia. See Zabalza (2007).

On this, see for example, Ruiz Huerta (2000). See also Gimenez (2000, 2006), Monasterio et al. (2002) and Lopez Laborda (2004).

Some of these favourable Constitutional Court resolutions are: STC 37/1987, STC 150/1990, STC 163/1994, STC 186/2004. On some other occasions the taxes or charges created have been considered non-constitutional (examples are STC 289/2000 and STC 96/2002).

At present, negotiations aimed at reforming the common financial system have also started. The recently passed Laws 3/2006 and 15/2006 have not made any change on these matters though they have slightly modified ACs borrowing rights, as will be mentioned in the final section of the article.

For 2006 it provided €32 396 549 810 for ACs in the system. See MEH (2008).

Since Law 22/2006, this fund has been divided into two: the compensation fund and the complementary fund. The latter serves to finance not investment projects in themselves (as required by the Constitution) but complementary activities needed to initiate or run these investment projects. See Alvarez and Cantarero (2007).

“Foral” relates to the fueros, that is, to some traditional political privileges once awarded by a King to a city or region.

In Germany, for example, the share percentages for PIT revenues as well as for corporate income tax are settled in the Constitution. The percentage for sharing VAT revenues is settled by law. The three taxes are shared taxes. For Spain, see Table 1.

The total income of these two ACs only represents about 8% of total income by all ACs in Spain.

On these differences, see CMDGT (2007), Ramos (2007) and Rivas and Ordoñez (2007).

For an analysis of the bailout problem in the Argentina case, see Sanguinetti and Tomassi (2000, 2004), Tommasi et al. (2001) or Saiegh and Tommasi (1999). See Tanzi (2000) for an analysis of the potentiality of macro-economic problems.