The Political Economy of Inter-Regional Fiscal Flows Measurement, Determinants and Effects on Country Stability
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
Chapter 12: The Determinants of the Regional Allocation of Infrastructure Investment in Spain
12. The determinants of the regional allocation of infrastructure investment in Spain 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...
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