Smoke and mirrors: how regional finances complicate Spanish-Catalan relations

Abstract

This article examines the relationship between the form of fiscal decentralization in Spain and the rise in tensions between the Spanish and Catalan governments during the financial crisis, in particular from mid 2010 to mid 2013. As a profound budgetary crisis unfolded at regional government level in Spain, longstanding disputes over the regional financing system and its methods of redistribution among the seventeen autonomous communities escalated. Most notably, Catalonia, one of the most indebted regions, attributed its financial woes in part to over-redistribution. This is not a straightforward connection, but the lack of clarity regarding both the workings of the regional financing system and the causes of the regions’ varying levels of fiscal (in)compliance reduced accountability and fuelled disputes among central and regional governments, giving both sides scope to offer different interpretations. The smoke and mirrors regarding regional finances combined with the nature of intergovernmental dynamics in Spain contribute to explaining the persistent inability to resolve regional fiscal problems and agree a long-lasting reform of the regional financing system.