Institutional and Economic Determinants of Regional Public Debt in Spain

We analyze from an empirical point of view the evolution and determinants of Spanish regional public debt. Spain offers an interesting case study because of its high level of fiscal decentralization, implemented gradually during the past four decades, the parallel entry into force of a number of national fiscal rules in that period, and the heterogeneity of its regions, both in terms of economic fundamentals and some institutional features. Our main findings are the following: i) regional governments' fiscal policies reacted to public debt increases, on average, over the sample of study; ii) fiscal rules played a limited role in controlling debt surges, being only marginally effective in some instances, like high debt situations; iii) a higher degree of regional fiscal co-responsibility tends to be linked to more subdued debt dynamics; iv) market-disciple indicators have encouraged some discipline at the regional level, and v) regional non-standard (commercial) debt surges present explanatory power on the standard measure of public debt