Subnational Government's Budget Deficit Targets in a Monetary Union: the Spanish case 1995-2010

Abstract

[eng] We set out an analysis of the factors that explain subnational budget balances. Ours results suggest that long run deficit targets should not be distributed linearly across Autonomus Communities, and cannot be expected to be fulfilled in the same time-horizon. More important, financing agreements should be redesigned in order to avoid the central government having the opportunity to transfer its deficit to Autonomous Communities. Finally, more budgetary coordination is needed in order to prevent that Autonomous Communities circumvent central governments fiscal rules using their public entities.