Seminari Daniel Aparicio-Pérez

Daniel Aparicio-Pérez (Universitat Jaume I) will present his paper “Politics versus Economics: The Case of Spanish Regional Financing", joint work with Maria Teresa Balaguer-Coll, Arne, Risa Hole, and Emili Tortosa-Ausina (Universitat Jaume I). Please find the abstract below and the manuscript attached.

Abstract

The link between fiscal decentralization and economic growth is a work-horse field of research which has historically arrived at ambiguous conclusions. Nevertheless, less is known about the regional consequences of an asymmetric decentralized system such as the case of Spain. In this article, we provide evidence for the literature evaluating the two extreme case regions (the Basque Country and the Valencian Community) in terms of how they have benefited or been harmed, after the approval of their respective most recent critical laws on the Spanish fiscal decentralization process: (i) the Basque Economic Agreement (BEA, hereinafter) approved in 2002 and (ii) the 2001-model within the common financing system. To undertake this analysis, we develop an empirical strategy based on differences-in differences regression and the synthetic control method. We evaluate if an asymmetric fiscal decentralized system, based on cultural or political reasons rather than economic ones, is not innocuous for the economic development of  a given region, and has quasi-permanent consequences in terms of convergence for the whole country. Under both diff-in-diff regression and synthetic control method, we find that the BEA approved in 2002 contributed to an extra increase in the Basque Country level of GDP per capita. Conversely, the approval of the 2001-model, within the common financing system, brought about a noticeable reduction in the level of GDP per capita in the Valencian community—also under both methods.