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Publius: The Journal of Federalism Advance Access originally published online on October 30, 2006
Publius: The Journal of Federalism 2007 37(1):68-102; doi:10.1093/publius/pjl016
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© The Author 2006. Published by Oxford University Press on behalf of CSF Associates: Publius, Inc. All rights reserved. For permissions, please email: journals.permissions@oxfordjournals.org.

Fiscal Federalism, European Stability Pact, and Municipal Investment Finance: A Microdata Analysis of Spanish Municipalities

Jaime Vallés and Anabel Zárate*
*University of Saragossa, Spain.

In countries where subnational governments control a large part of the public finances, the central government's ability to keep its commitment to the European Union's Stability and Growth Pact can be a difficult matter. European rules demand that the overall budget be balanced over the medium term; applying this rule at subcentral level may unduly reduce capital outlays and local budgetary autonomy. This article examines the possible impact of budgetary stability legislation on the capital expenditure of Spanish municipalities. The empirical findings suggest that the new budgetary stability framework will oblige municipalities to (i) limit their investments, (ii) raise the tax burden, or (iii) reduce the funds allocated to other budget items. We believe the Spanish municipal experience is generalizable to other federal countries in Europe that are facing hard budget constraints and high earmarked grants.

Correspondence: jvalles{at}unizar.es


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