The role of intergovernmental finance in achieving diversity and cohesion: the case of Spain

The democratic Constitution of 1978 set up a decentralised state in Spain. Since then, the Autonomous Communities (intermediate level of government) have strongly increased their role and currently represent around 25-30% of total public expenditure. Thus, financing autonomous government has become a crucial issue with important financial and political consequences. The present system is mostly based on grants coming from central government, while tax revenue are weak and so it is fiscal responsibility. The financing system can play an important, albeit complementary, role in ensuring cohesion within a decentralised state. On the one hand, achieving a certain level of equalisation in providing public services all over the territory. On the other, permitting that all regions can obtain an appropriate level of self-government. However, it is important to stress that territorial cohesion requires, as previous conditions, a political consensus and the acceptation of a common project among the different regions. Financial problems can become political problems, but rarely political problems can exclusively be solved through financial measures. Hence, we should not demand to the intergovernmental finances what they cannot do.