Table of Contents

The Political Economy of Inter-Regional Fiscal Flows

The Political Economy of Inter-Regional Fiscal Flows

Measurement, Determinants and Effects on Country Stability

Studies in Fiscal Federalism and State–local Finance series

Edited by Núria Bosch, Marta Espasa and Albert Solé Ollé

Struggles over what a region receives, or should receive, from the budget of the central government are common to many countries. Discussions often focus on the measures of ‘net fiscal flows’ or ‘fiscal balances’ provided by the government or other actors. This unique book shows just how these flows are computed then interpreted and clarifies the often misunderstood economic and political motives that explain why some regions receive more monies than others.

Chapter 12: The Determinants of the Regional Allocation of Infrastructure Investment in Spain

Albert Solé Ollé

Subjects: economics and finance, public finance, politics and public policy, public policy


Albert Solé Ollé 1 INTRODUCTION The geographical pattern of the central government’s investment in infrastructure accounts in large measure for the ‘net fiscal flows’ among the Spanish regions (see Bosch and Espasa, this volume). Moreover, such infrastructure-related ‘fiscal deficits’ are especially contentious for, at least, three reasons. First, these deficits, particularly if sustained over time, mean that the infrastructure capital stocks of rich regions become too small in relation to the size of their private economy. This has an immediate impact of increased levels of congestion, rising prices, and additional difficulties when competing in global markets. Second, the central government can exercise considerable discretion in the territorial allocation of infrastructure investment. For example, it is much easier to reallocate highway funds from one region to another than it is, say, to achieve the same level of redistribution through public consumption or employment policies. Even in cases where infrastructure projects have been subject to lengthy planning processes, annual budget decisions eventually determine the real amount of funds allocated to each project and, thus, the speed with which they are executed. This means that, although the regional allocation of infrastructure investment is partly based on ‘objective’ economic criteria (for example, income, land area, etc.), purely political interests also play a prominent role. Third, it is not entirely clear as to what exactly the ‘objective’ criteria are in this case, since infrastructure investment could be directed either to regions with high project impact, adhering to an efficiency criterion, or to regions with low...

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