Spain | Operational equity criteria: the regional financing system

Summary

This Working Paper proposes a set of quantitative indicators of territorial equity to assess reforms to the regional financing system, comparing the current model with the Government’s recent proposal and several variations aimed at reducing arbitrariness.

Key points

• Key points:
• The current system achieves full equalization on average but exhibits significant inequality, with 13% of resources allocated through ad hoc funds and a maximum gap of 30.2 percentage points between regions.
• The Government’s proposal reduces the share of ad hoc elements from 13% to 2%, thereby decreasing funding dispersion and lowering the maximum gap to 17.8 points, with an estimated cost to the central government of €15.316 billion.
• The alternative reforms analyzed suggest that it is possible to further compress the territorial distribution by eliminating arbitrary reallocations while maintaining a high degree of equalization between 90% and 95%.
• Accurate technical measurement of fiscal capacity and normative revenue is crucial, as calculation inefficiencies conceal structural inequities and limit the effectiveness of equalization transfers.

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