International Research Seminar

“AUTONOMY STATUTES AND REGIONALIZATION: SOLIDARITY AND EQUALIZATION BETWEEN REGIONS”

(Geneva, (Geneva, July 2013)

Spanish Constitution; they are the result of the laws that regulate the foral system, laws that, of course, can be modified. The consequence of this difference is that given that the foral communities are regions with higher income than the Spanish average, the current financing system allows them to obtain higher (around 50%-60%) per capita revenues than the rest of the ACs. Without a doubt, this difference represents a destabilising item of the autonomic financing and, if I may so, of the same state of the ACs themselves.

In practice, the difference between the results is generally seen in Catalonia, community where an important part of the population has a deep nationalistic sentiment, as an unfair disadvantage. Being one of the rich regions, the final resources that reach Catalonia after the financing systems is implemented have always been lower, and sometimes much lower, than the resources obtained by poorer communities. From the Catalan perspective, the question to raise is quite straightforward: why should one region finance equalisation grants if other ACs with similar income do not do it? Faced with this situation, the alternative chosen by many was requesting the same treatment received by the Basque Country and Navarre, without assessing whether there is any technical foundation in this request. We should not forget that the main goal is to obtain the same results or at least similar results. This is a matter which generates divided opinions, and each person has its own, but as an observer of the reality, I consider that the current discussion regarding Catalonia’s independence would be significantly different if the difference between the results of the foral system and the common one would be lower.

As a consequence, in Spain, and now in Morocco, the recognition of the autonomy of a region is proposed as the solution to an existing political problem. The financing of these autonomies is also due to a political agreement. Nonetheless, it is utterly important to assure that the economic results of the chosen system must not allow the existence of certain disparities which ultimately are nothing but a continuous source of conflict, and represent an obstacle in solving the tackled problem.

## The Territorial Equalisation

In the common regime of autonomic financing system of Spain, the first step consists in calculating the expenditure needs of each AC, ceding certain taxes and determining certain equalisation grants in order to cover the expenses generated by the respective expenditure needs. Nonetheless, this calculation is not an easy one and was not done properly since its very beginning. This fact has generated a starting point, the previously mentioned status quo, which has subsequently conditioned all the recurring reforms. The current equalisation mechanism is immensely complex, not very transparent, its grounds are difficult to comprehend and it generates a final resources allocation that could easily be qualified as arbitrary. In the case of Catalonia, this situation has also been considered as a factor of discrimination which undoubtedly is behind the current independency controversy. Indeed, whenever a pronounced nationalist sentiment exists, there is added difficulty in understanding why after the implementation of the solidarity mechanism, a richer region receives fewer resources per capita than poorer regions. From this perspective, we could state that the financing system is inefficient because it penalises richer regions. Furthermore, the system is also regarded as unfair because it does not show a clear pattern in its results: some rich regions are benefited by the regime, while others are not; its effect on the poorer regions can also be disparate.

In conclusion, a recommendation would be the implementation of an equalisation system with a clear and explicit equity criterion and, in which the calculation of the equalisation grant is coherent and according to the established equity criterion.

## The Fiscal Responsibility

The recognition of the autonomy of a community has already been categorized as a political issue. However, when determining its functioning economists can provide useful recommendations in order to improve it. In regards to the fiscal responsibility, it is important to highlight that governments must be, in the eyes of their citizens, the main responsible for the revenues and spending. While it is true that equalisation grants must have a role in the financing system, we must not disregard the fact that when grants are the main revenue source of a territory, and the autonomy of it only reflects in its ability to decide its own expenses, the government of said territory can easily claim that its actions are limited because the central government does not provide it with all the necessary resources. The autonomic government must be held responsible in front of its citizens both for the ways in which it uses and raises funds. It is always easier to increase the expenses of a certain competence when revenue comes from another government than to increase a tax that allocates more resources for specific purposes. If the government does not have enough tax autonomy, it has a higher incentive to spend the received funds in an irrational way.