Strategic fiscal performance in Spainwhen the regions pay attention to federal fiscal deficits

Resumen

The aim of this paper is to investigate whether scal performance and governments are vertically related in a federal country. Specically, we claim that budget decits at central level are potential explanations of their regional counterparts. Shared scal rules are common within a country, though litera- ture have paid little attention on it. Inecient scal policies may arise when one player deviates from the target. The existence of such relation should have impacted countries economic stabilization in the short run, improving or eroding scal accounts. This work rst identify relations between both variables through correlation analysis. Then a variety of panel data methods are estimated for the Spa- nish case between 1995 and 2010 (both years included). Results reveal a high correlation between decits and a positive eect relationship. In conclusion, when federal government deviates from the decit target, regions run higher decits.