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Title: Full Characterisation of the Political Economy of Fiscal Adjustment: Evidence from Spanish Municipalities
Author: Castells, Antoni (Castells Oliveres)
Esteller Moré, Alejandro
Vilalta, Maite
Keywords: Federalisme
Política fiscal
Fiscal policy
Issue Date: 2004
Publisher: Institut d’Economia de Barcelona
Series/Report no: [WP E-IEB04/03]
Abstract: By means of a dynamic panel data analysis, and using a database from municipalities of the province of Barcelona (1993-99), we describe their process of fiscal adjustment to a shock in tax capacity. About 25% of the shock is internalized through an increase in tax effort, 35% through a reduction in public expenditure (mainly investment), while the rest is covered by an increase in the level of debt (i.e., the adjustment is delayed). However, this process of adjustment is very much influenced by the political situation of the municipality. Coalition and minority governments (“weak” governments) tend to delay the (unavoidable) adjustment, and 70% of their shock is covered by an increase in the level of debt, while the rest of municipalities (“strong” governments) adjust immediately. Leftist governments mostly react through increases in tax effort, while rightist governments reduce public expenditure to a greater extent. Finally, we find that municipalities are relatively reluctant to decrease taxes, that is, they react differently to a negative (28%) and a positive (26%) shock with regard to the level of tax effort.
Note: Reproducció del document publicat a:
It is part of: IEB Working Paper 2004/03
Appears in Collections:IEB (Institut d’Economia de Barcelona) – Working Papers

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