SPAIN

The Constitution of Spain, enacted in 1978, established Spain as a unitary parliamentary monarchy. In reality, Spain, also referred to as “the State of Autonomies”, is a quasi-federation, with a three-tier system of subnational governments that includes autonomous communities, provinces and municipalities. The right to self-government is enshrined in the Constitution (Article 2), and the autonomy of subnational governments is recognised in the Article 137. The 17 autonomous communities (ACs) have a large autonomy, including the exclusive ability to decide on the organisation of municipalities and provinces within their territory. However, when it comes to municipal and provincial functions and finances, they are determined within the framework of the national law and not by regional constitution or law, unlike federal countries.

At federal level, the Government is led by a Prime Minister and the Head of State is the Monarch. Spain’s bicameral parliament comprises the Congress of Deputies (Congreso de los Diputados) and the Senate (Senado). 208 out of the 266 members of the Senate are directly elected by the population, while the remaining 58 senators are appointed by the regional assemblies (each AC appoints one senator, and an additional senator for every million inhabitants in their respective territories). The lower house can overrule the upper house (in the budget process notably).

At regional level, the deliberative bodies of the ACs are regional assemblies (asamblea regional). The assemblies have devolved legislative powers, and their members are elected by direct universal suffrage for a four-year term. Each assembly elects a President (presidente) from among its members who chairs the regional government council for a four-year term.

At the local level, local governments are governed jointly by the central government and the regions. The provinces’ deliberative body is the provincial deputation (diputación provincial), which is composed of members elected by and from the municipal councillors of the province, following municipal elections. The deputation elects a president (president de la provincia) from among its members. The Balearic and Canary Islands are organised as “island councils”. The municipal deliberative body is the local council (pleno), whose members are elected every four years by direct universal suffrage. The council is chaired by a mayor (alcalde), the head of the executive body, who is appointed from amongst the local council members.

The first decentralisation process in Spain took place during the 1^st Federal Republic in 1873, but the process was delayed and paralysed many times due to several periods of dictatorship and the civil war. The 1978 constitution that followed the end of the dictatorship finally paved the way for the development of ACs, which subsequently were created through complex procedures (“fast-track” or “low-track”) from 1979 to 1983.

A major decentralisation process took place in the 2000s with the transfer of education (2000) and healthcare (2002) to autonomous communities. During the same period, reforms of autonomous communities’ status were carried out on a case-by-case. In 2009, the Law 22/2009 on the financing of autonomous communities (in effect since 2011), which amended the Organic Law 8/1980, had a major impact on regional finance. Following the global crisis, which severely affected Spanish subnational governments, several laws were adopted to introduce stricter fiscal rules at subnational level (Organic Law 2/2012) and improve the multi-level governance framework (Law 27/2013 on the Rationalisation and Sustainability of Local Administration - LRSAL). The latter provided a new framework for the articulation of local governments with the regional and central ones and aimed at clarifying the distribution of competencies (under the principle “one administration, one competence”), ensure budgetary and financial control through increased transparency and accountability, and foster economic growth. Recently, federalism in Spain has been being tested by independence claims in several autonomous communities (Catalonia in 2016).

Vertical coordination between the central government and the ACs is made, on a voluntary basis, through the Conference of Presidents (Conferencia de Presidentes), created in 2004. Chaired by the Prime Minister, it includes the presidents of the 17 ACs, of the two autonomous cities, and the central government. Since its creation, the Conference of President held more than twenty meetings, with an acceleration since the start of the COVID-19 pandemic. Vertical coordination also takes place through sectoral conferences such as the Council of Fiscal and Financial Policy (Consejo de politica fiscal y financiera, CPFF) in economic, fiscal and financial matters, or through bilateral discussions. Vertical coordination between the central government and local governments takes place with the National Commission for local Administration (Comisiòn Nacional de Administracion Local), which was created in 1985. Autonomous communities have their own fora for coordinating with local governments under their jurisdiction.

The Spanish Urban Agenda (SUA), approved in 2019, is a key strategic national document that aims to achieve sustainable urbanization. The SUA promotes the development of urban-focused policies, strategies and action plans at all levels of government and territories. Five regions (Basque Country, Andalusia, Extremadura, Catalonia and Valencia) and 120 cities and towns - have developed or are currently developing their own urban agendas.

TERRITORIAL ORGANISATION
MUNICIPAL LEVEL	INTERMEDIATE LEVEL	REGIONAL LEVEL	TOTAL NUMBER OF SNGs (2021)
8 131 municipalities (municipios) + 2 Autonomous Cities (ciudades autónomas)	50 provinces (provincias)	17 autonomous communities (comunidades autónomas)
Average municipal size: 5 824 inh.
8 133	50	17	8 200

OVERALL DESCRIPTION : Spain has a three-tier subnational government system characterised by an asymmetric organisation. It is composed of 17 Autonomous Communities (Comunidades Autonomas, ACs) at the regional level, and 50 Provinces (Provincias), 8 131 Municipalities (Municipios) and two Autonomous Cities (Ceuta and Mellila) at the local level. The structure of municipalities and provinces differs from one region to another.

Among the Autonomous Communities, there are two archipelagos, the Canary Islands and the Balearic Islands, which are composed of another territorial entity: islands. Although islands are not mentioned in the Constitutions, each island has its own administration in the form of Cabildo or Insular Council, guaranteeing constitutional local autonomy. The Canary Islands have the Outermost Region status under the Treaty of the European Union.

There also exists a state deconcentrated territorial administration, represented at the regional level through general delegates, and at provincial level through sub-delegates.

REGIONAL LEVEL: The system of government of the Autonomous Communities is parliamentary in nature. Its basic institutions being Parliament, the president of the Autonomous Community and the regional government. However, Autonomous Communities each have their specific statute, allowing for some distinctive features, especially since the 2000s when several statutes were reformed on a case-by-case basis (Catalonia and Valencia in 2006, Andalusia, Aragon and Balearic Islands in 2007, etc.). These include basic institutional regulation, the organisation and operation of parliamentary and governmental bodies, responsibilities, distinctive aspects such as language or civil law, and relations with the State and other Autonomous Communities. The two “foral” autonomous communities of Basque Country and Navarra, in particular, retain more fiscal autonomy than the rest of the regions.

ACs are quite diverse in terms of area, population size and socio-economic situation. While the average demographic size is around 2.785 million inhabitants, the least-populated region has 316 000 inhabitants (La Rioja) and the most populated 8.5 million (Andalusia). The AC of Castille and Leon encompasses 2 248 municipalities, whereas the region of Murcia only 45. The region with the highest GDP per capita (Madrid) is twice as wealthy as the region with the lowest GDP per capita (Andalusia). However, over the last 20 years, differences between regions of Spain in terms of GDP per capita have remained stable at relatively low levels compared to OECD countries.

INTERMEDIATE LEVEL: Provinces exist since 1833. At that time, the division was made on a set of “rational” criteria including the area (based on the model for French départements), population (a province should include between 100 000 and 400 000 inhabitants) and geographical coherence. Since 1833, the provinces have undergone only minor changes, remaining almost the same until today. Today, provincial size is around 947 000 inhabitants on average, but it ranges from 89 000 inhabitants in Soria to 6.8 million inhabitants in the province of Madrid. Provinces have been contested for a long time and suffer from a lack of democratic legitimacy. However, the 27/2013 law strengthened their role by recentralising some responsibilities of certain small municipalities (under 20 000 inhabitants) at the provincial level.

At the provincial level, there exist special government and administration regimes, such as for the provincial bodies of Álava, Guipúzcoa and Vizcaya, the Cabildos of the Canary archipelago and the Balearic Island Councils.

MUNICIPAL LEVEL: The municipal level is quite fragmented. While the average size is 5 823 inhabitants (in par with the EU average of 5 959 inhabitants but below the OECD average of 10 254 inhabitants), the median size of municipalities is among the lowest in OECD countries (518 inhabitants). Around 84% of municipalities have fewer than 5 000 inhabitants, and 72% less than 2 000 inhabitants. The municipalities of Madrid and Barcelona have a specific organisation due to their population size (law 1/2006 regulating the special organisation of the municipality of Barcelona, and law 22/2006 on Capital Status and Special Regime of Madrid). Spain also has a structured level of 3 719 sub-municipal entities smaller than municipalities, which are deconcentrated municipal entities of the municipalities without their own legal personality.

The two autonomous cities of Ceuta and Melilla, located in North Africa, have fewer powers than ACs, but more than municipalities. They each hold a special individual Autonomy Status, approved on March 1995 by Organic Laws, which provides them with a specific institutional system (Assembly, President and Governing Council), their responsibilities and their own economic and financial structure. They are municipalities in the true sense, but their organisation and powers are akin to those of an Autonomous Community.

Overall, 45% of the Spanish population lives in a metropolitan area with more than 500 000 inhabitants, compared to 55% on average in the OECD area. Metropolitan areas in Spain account for 48% of national GDP and 46% of employment. With an average annual GDP per capita growth of 1.2%, Bilbao metropolitan area had the highest economic growth in Spain between 2000 and 2018, almost twice as high that of Madrid, the richest metropolitan area in Spain. To improve metropolitan governance, both central and regional governments have developed initiatives. For example, the Spanish central government created a Metropolitan Corporation of Barcelona in 1975, which became a metropolitan authority in 2011 by law 31/2010 passed by the Parliament of Catalonia. The Àrea Metropolitana de Barcelona (AMB) brings together 36 municipalities to work on planning, transport, water, waste treatment, social cohesion and economic development issues.

HORIZONTAL COOPERATION: Horizontal cooperation is facilitated through the Conference of the Governments of the Autonomous Communities which is the most important political institution regarding cooperation between the state and the Autonomous Communities. It facilitates identifying shared positions of ACs in negotiations with the central government as well as through the Federation of Spanish Municipalities and Provinces at local level.

To reduce municipal fragmentation, law 27/2013 introduced incentives to promote municipal mergers on a voluntary basis; however, this initiative has had little impact thus far. Nevertheless, inter-municipal cooperation, in the form of Mancomunidades and Comarcas, has contributed to reducing the impact of municipal fragmentation in Spain. Mancomunidades and Comarcas create entities, on a voluntary basis, called ‘associations of municipalities’, which carry out joint projects or provide common services. They may be used by municipalities to better reflect their historic borders and common identities (Tierra de Campos, Manchuela) or for economic purposes. There were around 953 inter-municipal cooperation entities in 2019. The law 27/2013 also promotes the integration or coordination of municipal services (e.g. education, social services, healthcare) through financial incentives. Municipalities that use cooperation to cut costs are granted more transfers from the central authorities.

The allocation of local powers is regulated by the 1985 Law, setting the framework of the local government system (Ley reguladora de las bases del régimen local - LBRL). However, the devolution of powers to municipalities may differ substantially from one Autonomous Community to another.

The responsibilities of ACs are defined in their autonomous statute but, as a general rule, 23 areas are listed in the Constitution as responsibilities not expressly attributed to the central state, and therefore devolved to ACs. The distribution of powers between the State and the Autonomous Communities (ACs) is based on the distinction between exclusive powers, shared powers, and concurrent powers, in which both the State and Autonomous Communities may intervene. Shared powers include general regulation of education, social services, universities, municipal and provincial supervision. Conflicts on the overlap of competences between the central and regional governments are settled by the Constitutional Court.

At the intermediate level, provinces are responsible for ensuring the provision of municipal public services as well as investment projects of a supra-municipal character. They are in charge of the overall coordination of local government with the AC and the State, and guaranteeing compliance with solidarity and budget-balance principles among the municipalities they are comprised of. They must provide technical, legal, and economic assistance to small municipalities (fewer than 5 000 inhabitants). The LRSAL law 27/2013 aimed at clarifying competences between municipalities and provinces to prevent duplications, and strengthening provinces by recentralising (to provinces) some of the responsibilities of municipalities with fewer than 20 000 inhabitants.

At the municipal level, municipal responsibilities vary between mandatory “core competencies” and optional tasks (clarified by the LRSAL law), according to their population size. All municipalities are responsible for local services including local public utilities, public lighting, road maintenance and municipal police. Larger municipalities (more than 20 000 inhabitants) have additional responsibilities such as social service allowances, civil protection, public transport and environmental protection.

The commission on the Reform of the Spanish Public Administration (CORA) was established in 2012, to improve public-sector efficiency at all levels. Together with the LRSAL, it led to a large-scale drive to clarify the allocation of responsibilities across levels of government, reduce duplication and overlap across jurisdictions and limit the creation of new public entities or agencies at local level. It also reduced the number of agencies (Entidades Dependientes del Sector Público) in the regional administration by 34% between 2012 and 2016.

Main responsibility sectors and sub-sectors
SECTORS AND SUB-SECTORS	Regional level	Intermediate level	Municipal level
1. General public services (administration )	Municipal and provincial supervision (shared with the central government)	Internal administration; Coordination of local government with the AC and the State; Technical assistance to municipalities	Internal administration
2. Public order and safety	Public order		Public safety; Municipal police; Civil protection and firefighting (larger municipalities)
3. Economic affairs / transports	Regional and rural development; Fisheries, hunting, aquaculture, agriculture and forestry; Regional tourism; Regional railway and road networks; Regional transport; Ports and airports not engaged in commercial activities	Cooperation in the promotion of economic and social development and in planning of the provincial territory	Traffic management; Road maintenance; Tourism; Public transport (municipalities above 50 000 inhabitants); markets.
4. Environment protection	Environmental protection		Environmental protection (municipalities above 50 000 inhabitants); Waste management; Wastewater; Parks and gardens
5. Housing and community amenities	Urban planning; Housing		Urban policies; Water supply; Public lighting; Cemeteries and funeral services
6. Health	Health		Participation in the management of first healthcare.
7. Culture & Recreation	Museums; Libraries; Music conservatories of regional interest; Cultural heritage; Promotion of culture and of the regional language (when relevant)		Cultural facilities; Sport facilities (larger municipalities)
8. Education	Education (shared); Universities (shared)		Participation in the design of education programmes and facilities
9. Social Welfare	Social welfare; Social services (shared)		Social services allowances (larger municipalities); Promotion of social reinsertion

Scope of fiscal data: At regional level: autonomous communities, regional administrative agencies, regional universities, regional corporations which are non-market producers; at local level: local authorities (municipal, provincial and island), associations and groupings of municipalities, autonomous cities (Ceuta and Melilla) and bodies reporting to them (e.g. public organisations, corporations and foundations).

SNA 2008

Availability of fiscal data: High

Quality/reliability of fiscal data: High

GENERAL INTRODUCTION: Provisions on fiscal issues on subnational governments are detailed in Article 135 of the Constitution, in law 22/2009 on the financing of ACs and in the Basic Law on Local Government 7/1985, revised in 2013, as well as in Budgetary Stability Acts (2001, 2006, 2009 and 2012).

Overall, most subnational fiscal powers are concentrated in the ACs, to the detriment of local governments. Autonomous Communities have considerable freedom in terms of economic and fiscal management. They are able to approve their own annual budgets and determine their own resources through taxes, rates and surcharges. The general funding system of ACs, which also includes taxes assigned by the State and participation in national taxes, is set multilaterally between the State and ACs, ensuring inter-regional solidarity and an equal minimum threshold in the provision of basic public services.

This fiscal decentralisation is asymmetric, with two distinct regimes: the common regime (which concerns 15 of the Autonomous Communities) and the “foral” regime (the Economic Agreement for Basque Country and the Agreement for Navarra) which is characterised by an almost complete spending and revenue autonomy. With these systems, these Communities negotiate directly with the State regarding (i) their contribution to its support and (ii) the harmonisation of their own tax system with the one that prevails in the rest of the country. In addition, within the common regime, the Canary Islands has a specific economic and tax system due to historical and geographic reasons and its status as an EU “outermost region”. The particularities of the “foral” territories and of the Canary Islands are mentioned in the Articles 156 to 158 of the Spanish Constitution, which refers to the Funding System of the Autonomous Communities. Besides, the two autonomous cities are included in the autonomous financing framework.

Following the profound changes brought about by the reform 22/2009, in effect since 2011, a new reform proposal has been submitted to ACs and autonomous cities in 2021 to amend the regional financing system, based on adjusted population criteria to assess the cost of service provision. The new formula proposes to increase the weight of health and educational spending, as well as geographical variables such as dispersion, depopulation and insularity, and lower the importance of the registered population.

Subnational, state and local government expenditure by economic classification
2020	Dollars PPP / inhabitant			% GDP			% general government			% subnational, state and local government
-	SNG	State	Local	SNG	State	Local	SNG	State	Local	SNG	State	Local
Total expenditure	9 511	7 066	2 445	24.8%	18.4%	6.4%	47.3%	35.2%	12.2%	100%	100%	100%
Inc. current expenditure	8 557	6 366	2 190	22.3%	16.6%	5.7%	46.7%	34.8%	12%	90%	90.1%	89.6%
Compensation of employees	3 827	2 970	857	10%	7.8%	2.2%	79.7%	61.9%	17.9%	40.2%	42.03%	35%
Intermediate consumption	1 909	1 162	447	5%	3%	2%	84.8%	51.6%	33.2%	20%	16.5%	30.1%
Social expenditure	1 266	1 218	48	3.3%	3.2%	0.1%	14.1%	13.6%	0.5%	13.3%	17.2%	1.9%
Subsidies and current transfers	1 398	877	521	3.7%	2.3%	1.3%	99.3%	62.3%	37%	14.7%	12.4%	21.3%
Financial charges	142	126	16	0.4%	0.3%	0%	16.5%	14.6%	1.9%	1.5%	1.2%	0.7%
Others	14	13	2	0.04%	0.03%	0%	48.3%	42.3%	6.1%	0.2%	0.2%	0.1%
Incl. capital expenditure	954	699	255	2.5%	1.8%	0.7%	53.3%	39.1%	14.3%	10%	9.9%	10.4%
Capital transfers	272	246	26	0.7%	0.6%	0.1%	35.2%	31.9%	3.3%	3%	3.5%	1.1%
Direct investment (or GFCF)	683	453	230	1.8%	1.2%	0.6%	67.1%	44.6%	22.6%	7.2%	6.4%	9.4%

EXPENDITURE: Spainhas undergone thorough decentralisation in recent decades, shifting from a highly centralised system before 1978 to a highly-decentralised one. Today, Spain is one of the most decentralised countries of the OECD, with subnational governments being responsible for almost half of total public spending in 2020, above the OECD average (17.1% of GDP and 36.6% of public expenditure), and in line with the average for OECD federal countries (20.6% of GDP and 43.5% of public expenditure). There has been a slight increase in the share of AC spending as a share in total subnational government spending between 2016 and 2020, going from 72% to 74%, as compared with municipalities and provinces that represent around 26% of subnational expenditure in 2020. Subnational governments’ staff expenditure represents on average 40% of subnational government expenditure (compared to 37% on average among OECD federal countries) and almost 80% of all public staff expenditure. ACs in particular are key public employers, due to their high degree of involvement in key sectors (education, healthcare). They account for 61.9% of total public staff expenditure while local authorities account for only 17.9%.

Regarding budgetary practices led at the regional level, the autonomous community of Andalusia stands out with its "Green Budget" initiative, which is a new way to implement fiscal policies whose objective is to align Andalusia’s revenues and expenditures with environmental objectives. Moreover, it includes a “Green Fund” which provides funding to all the projects presented by the different administrative centres interested to carry out investments aligned with climate awareness or actions related to climate awareness.

DIRECT INVESTMENT: Spanish subnational governments, and particularly ACs, play a crucial role in infrastructure investment, research and development, and development policies. This role has been reinforced since 2020 by the pandemic. Subnational governments’ direct investment represented 1.8% of GDP in 2020, and 7.2% of total subnational expenditure, which is relatively low compared to the average for OECD countries (11.3% in 2020). As a percentage of total public investment, in 2020, subnational government direct investment represented 67.1% of total public investment in 2020, above the OECD average (54.6%) and the OECD average for federal countries (61.5%). Within subnational government investment, ACs accounted for 66%, that is an increase of 3 points between 2016 and 2020, leaving local government with a share of 34%.

ACs are primarily responsible for regional development, and most subnational government investment is dedicated to economic affairs, in particular public work and infrastructure of local/regional interest, followed by general public services, housing and community amenities and healthcare. Regional governments are supported by the central government for investment through the Inter-territorial Compensation Fund and the Regional Incentives Programme, which are measures to finance development projects in less developed regions. The post-pandemic economic recovery strategy emphasizes investment for the ecological transition and the digitization of the economy, all with a regional perspective, since said strategy for Spain was developed together with the ACs. In addition, the 2030 Industrial Strategy and the 2017-27 Internationalisation Strategy of the Spanish Economy 2017-27 provide the framework for the long-term economic development strategies for regions.

Additionally, at the beginning of 2020, within the framework of the European Regional Development Fund (ERDF), EUR 382.7 million were granted to ACs and municipalities with the aim of facilitating investments in the ecological and digital transition. These resources are added to the EUR 354.8 million allocated to five autonomous communities under the 2022 tranche of REACT-EU in December 2021, to invest in sectors such as energy efficiency, transition towards a digital economy and electric mobility in public transport.

Subnational, state and local government expenditure by functional classification
2020	Dollars PPP / inhabitant			% GDP			% general government			% subnational, state and local government
-	SNG	State	Local	SNG	State	Local	SNG	State	Local	SNG	State	Local
Total expenditure by economic function	9 511	7 066	2 445	24.8%	18.4%	6.4%	-	-	-	100%	100%	100%
1. General public services	1 977	1 152	825	5.2%	3.0%	2.2%	88.0%	51.3%	36.7%	20.8%	16.3%	33.7%
2. Defence	0	0	0	0.0%	0.0%	0.0%	0.0%	0.0%	0.0%	0.0%	0.0%	0.0%
3. Security and public order	369	189	179	1.0%	0.5%	0.5%	46.1%	23.6%	22.4%	3.9%	2.7%	7.3%
4. Economic affairs/transports	1 068	653	416	2.8%	1.7%	1.1%	42.5%	25.9%	16.5%	11.2%	9.2%	17.0%
5. Environmental protection	338	82	257	0.9%	0.2%	0.7%	91.8%	22.1%	69.7%	3.6%	1.2%	10.5%
6. Housing and community amenities	171	67	104	0.5%	0.2%	0.3%	98.9%	38.9%	60.0%	1.8%	1.0%	4.2%
7. Health	2 739	2 713	26	7.2%	7.1%	0.1%	93.9%	93.0%	0.9%	28.8%	38.4%	1.1%
8. Recreation, culture and religion	396	107	289	1.1%	0.3%	0.8%	82.3%	22.2%	60.1%	4.2%	1.5%	11.8%
9. Education	1 714	1 626	88	4.4%	4.2%	0.2%	96.5%	91.5%	5.0%	18.0%	23.0%	3.6%
10. Social protection	738	477	261	1.9%	1.2%	0.7%	8.7%	5.6%	3.1%	7.8%	6.8%	10.7%

In health, education, environmental protection and housing and community amenities, Spanish subnational governments are responsible for almost all public spending at the national level. Health and education are prime regional competences, with almost no contributions from municipalities, whereas for environmental protection and housing and community amenities, funding responsibilities are shared between regional and local governments, with local governments being responsible for the larger share.

The primary area of regional spending is by far health (38.4% of regional spending, accounting for 7.2% of GDP, against 2.9% of GDP on average in the OECD), followed by education (23% of regional spending accounting, and 4.4% of GDP), general public services (16.3%) and economic affairs and transport (9.2%). To deal with the effects of the pandemic, a dedicated fund was established in 2020 to support the ACs in three main spending categories: healthcare, education and compensating for the decrease of economic activity.

Municipal and provincial main category of spending is general public services (33.7%), followed by economic affairs and transports (17%), recreation, culture and religion (11.8%), social protection (10.7%) and security and public order (7.3%) and housing and community amenities (4.2%).

Subnational, state and local government revenue by category
2020	Dollars PPP / inhabitant			% GDP			% general government			% subnational, state and local government
-	SNG	State	Local	SNG	State	Local	SNG	State	Local	SNG	State	Local
Total revenue	9 528	6 982	2 545	24.9%	18.2%	6.6%	59.9%	43.9%	16%	100%	100%	100%
Tax revenue	3 577	2 336	1 241	9.3%	6.1%	3.2%	40.8%	26.7%	14.2%	37.5%	33.5%	48.8%
Grants and subsidies	5 249	4 200	1 050	13.7%	11%	2.7%	-	-	-	55.1%	60.2%	41.2%
Tariffs and fees	650	420	230	1.7%	1.1%	0.6%	-	-	-	6.8%	6%	9%
Income from assets	29	14	15	0.1%	0%	0%	-	-	-	0.3%	0.2%	0.6%
Other revenues	23	13	10	0.1%	0%	0%	-	-	-	0.2%	0.2%	0.4%

OVERALL DESCRIPTION: Past fiscal decentralisation reforms modified the subnational government financing structure, resulting in a significant increase in tax revenue as a percentage of total subnational government revenue. In particular, law 22/2009 on the financing of the ACs introduced major changes including an increase in the share and discretion of ACs in shared tax, a reform of the equalisation system and a change in intergovernmental transfers. The revision of the law on funding municipalities and provinces was adopted in December 2013. However, in 2020, this trend was offset by the pandemic that produced a significant drop in public revenue.

In 2020, tax revenue accounted for 37.5% of subnational government revenue, that is almost 2.5 points less than in 2016, below the OECD average (44.2%) and the OECD average for federal countries (47.9%). Due to the economic response to COVID-19, the share of grants and subsidies in subnational government revenue increased compared to the situation in 2016 from 51% to 55.1% and remain quite high compared to other OECD federations (31.1% on average in 2020). Taken together, tariffs and fees, property income and other revenues accounted for less than 8% of subnational government revenues in 2020, a decrease of 1.8 pp compared to 2016.

Despite recent reforms to deepen revenue decentralisation, the share of tax revenue in AC revenue is much lower than the share of grants (33.5% vs 60.2%) while this is the reverse at local government level (48.8% vs 41.2%). In addition, ACs have limited participation in tax collection, which undermines their ability to fight tax evasion and generate tax revenue.

TAX REVENUE: All three levels of subnational governments in Spain have tax revenue (both own-source and shared for ACs and municipalities, and only shared-taxes for provinces). The Superior Council of Tax Coordination, established by the state tax authority and regional governments, coordinates tax management under the common regime, together with Territorial Councils for Tax Coordination and Management that operate within each autonomous community’s territory. Overall, subnational government tax revenue amounted to 9.3% of GDP and 40.8% of public tax revenue in 2020 (compared with 9.3% of GDP and 44.5% of public tax revenue on average for OECD federal countries). However, despite the creation of the Territorial Councils of Tax Coordination and Management, autonomous communities are still only marginally involved in tax collection.

All ACs except Basque Country and Navarra benefit from tax revenues shared with the central government on which they have some leeway (ceilings, tax exonerations and exemptions, etc.) Law 22/2009 increased their share of shared-taxes, and gave regions increased fiscal autonomy. In 2020, ACs received 50% of the PIT receipts (instead of 33% prior to the Law 22/2009), 50% of VAT receipts, 58% of excise taxes on tobacco, alcohol and petrol and 100% of revenues from tax on electricity and certain means of transport. The rest of tax receipts directly go to the Guarantee of Basic Public Services Fund. ACs are able to increase or decrease tax exemptions on the regional share (max. of 10% greater/less than the State’s level) and have discretion regarding the number of tax brackets, although they must have a progressive rate scale. Moreover, they have autonomy over the wealth tax, inheritance and gift tax, tax on capital transfers, gambling tax, vehicle excise tax and the Hydrocarbon Retail Sales Tax. Basque Country and Navarra, under special foral regime, enjoy a higher degree of fiscal autonomy than other ACs. They benefit from all taxes, except import duties, payroll taxes, VAT and excise duties, under the condition that the overall effective tax burden does not fall below that of the rest of Spain.

Municipal tax revenues comprise taxes that are less sensitive to the fluctuation of economic cycles, and a significant portion of municipal tax revenue comes from own-source taxes. Own-source taxes include Local Council Rates (IBI) - a recurrent property tax based on the rateable value of property. Municipalities are in charge of tax collection and setting their own IBI rates, within a defined range, from 0.4% to 1.1% of the property’s cadastral value. Revenue from the property tax represented 39% of municipal tax revenue in 2020, i.e. 1.25% of GDP (compared to 1.0% on average in OECD countries in 2020). Other own-source taxes include a vehicle tax (IVTM), a local business tax and two optional taxes: a tax on real estate transactions in urban areas and a tax on construction, facilities and infrastructure. Municipalities can also levy environmental taxes, but this is rarely used. Larger municipalities (more than 75 000 inhabitants) may also benefit from additional shared taxes (PIT, VAT and excise taxes). Provinces have the power to levy a surtax on the local business tax and are also entitled to some shared tax revenue (PIT, VAT and CIT).

The central government is evaluating carrying out a tax reform in 2022 or 2023. A group of experts, convened by the government, presented a White Paper (Libro Blanco del Comité de Personas Expertas para la Reforma del Sistema Tributario) with a series of proposals to reform the tax system, with four main axes: environmental taxation, taxation of the digital economy, the adequacy of the Corporate Tax and the harmonisation of the Wealth Tax, whose management varies in each AC. In addition, it is contemplated to limit the regulatory capacity of the autonomous communities, with the purpose of reversing or reducing their fiscal co-responsibility.

GRANTS AND SUBSIDIES: Spain has a highly-developed system of transfers from the central government to ACs and local governments, which primarily consist of current, non-earmarked grants that are dedicated to equalisation purposes.

ACs under the ordinary regime receive general unconditional equalisation grants and conditional grants. Law 22/2009 substantially modified the grants and equalisation system, in order to reinforce interregional solidarity. There are two main funds: 1) The Guarantee of Basic Public Services Fund (Fondo de Garantía de Servicios Públicos Fundamentales), non-earmarked, is the main fund intended to ensure equal funding for basic public services (in the sectors of health care, education and social services). All ACs contribute up to 75% of their tax revenue to this fund, in addition to an extra contribution by the central government. It is redistributed to each AC according to an “adjusted population criterion”, and is adjusted yearly. 2) The Global Sufficiency Fund (Fondo de Suficiencia Global) is based on the assessment of the fiscal gap between expenditure needs and fiscal capacity of each AC. In addition, regions receive conditional grants aimed at fostering regional development, such as the convergence fund (Fondos de Convergencia). These conditional grants include a Competitiveness Fund, for regions whose per capita funding/fiscal capacity is less than the national average, and a Cooperation Fund to help the less dynamic regions. Basque Country and Navarra do not receive transfers from the central government; they do, however, transfer funds to the central government and thus participate in the country’s general expenses. Grants and subsidies represented 60.2% of ACs revenue in 2020.

Regarding central government’s transfers to municipalities and provinces, they consist mainly in the State Revenues’ municipal and provincial Participation (PIE) that are current equalisation non-earmarked transfers to bridge the gap between municipal/provincial expenditure needs and revenue capacities. Local governments also receive transfers from autonomous communities. Finally, they also received earmarked grants for specific investment projects. In 2020, intergovernmental transfers represented 41.2% of provincial and municipal revenue.

OTHER REVENUE: The share of other revenues in total subnational government revenue is lower than the OECD average (7.3%, compared with 16.5% in the OECD on average in 2020). They include mostly user charges or fees, such as the sanitation charge received by regional governments, which was transferred from municipalities to regions in the 1980s, or fees from waste collection. Tariffs and fees represented, in 2020, 6.8% of revenues of ACs, and 9% for local governments (provinces and municipalities). In addition, subnational governments received a very small share of income from property assets (rents, sales), and the latest fiscal reforms did very little to change the situation.

Subnational, state and local government fiscal rules and debt
2020	Dollars PPP / inh.			% GDP			% general government debt			% SNG debt			% SNG financial debt
-	SNG	State	Local	SNG	State	Local	SNG	State	Local	SNG	State	Local	SNG	State	Local
Total outstanding debt	12 824	11 389	1 435	33.5%	29.7%	3.7%	22.76%	20.1%	2.5%	100%	100%	100%	-	-	-
Financial debt	11 390	10 634	757	29.7%	27.7%	2%	21.2%	19.8%	1.4%	88.8%	93.4%	52.7%	100%	100%	100%
Currency and deposits	0	0	0	-	-	-	-	-	-	0%	0%	0%	0%	0%	0%
Bonds / debt securities	1 718	1 684	34	-	-	-	-	-	-	13.4%	14.8%	2.4%	15.1%	15.8%	4.5%
Loans	9 673	8 950	723	-	-	-	-	-	-	75.43%	78.6%	50.4%	84.9%	84.2%	95.5%
Insurance pensions	0	0	0	-	-	-	-	-	-	0%	0%	0%	-	-	-
Other accounts payable	1 434	755	679	-	-	-	-	-	-	11.2%	6.6%	47.3%	-	-	-

FISCAL RULES: A constitutional reform adopted in 2011 underpinned the fiscal consolidation targets for all Spanish administrations from 2020 onward. Targets from 2020 included restricting structural deficits of central and regional governments to the limits set by the EU, and balanced budgets for local governments. Moreover, the Organic Law on Budgetary Stability and Financial Sustainability 2/2012 introduced strict fiscal rules for subnational governments, including a structural balanced budget rule and debt ceilings for all levels of governments (13% of regional GDP for each region), as well as expenditure rules for subnational governments (increases in expenditures may not exceed medium-term GDP growth, calculated over ten years), with the possibility of sanctions and automatic adjustment of regional expenditure in case of non-compliance).

An independent authority for Fiscal Responsibility (AIREF) was set up in November 2013 by Organic Law, to monitor and report on compliance of all levels of government. It is composed of central and regional finance and treasury ministers.

DEBT: The Organic Law 2/2012 established that regional and local governments may apply to the State for access to extraordinary liquidity support measures. As such, several arrangements were set up with the aim to provide liquidity to regional and local governments, leading to the creation in 2014 of the Regional Government Financing Fund (Royal Decree-Law 17/2014). The Fund is divided into three facilities: the Financing Facility, in which regional governments that meet budgetary stability targets may voluntarily participate; the new Regional Government Liquidity Fund, for regional governments that have not met such targets (replaces the former FLA); and the Social Fund, to pay regional government outstanding debts with local governments issued to ensure compliance with agreements on social spending.

Spanish subnational government debt has significantly increased after the 2008 global financial crisis, in particular the regional debt. This situation led to profound reforms regarding fiscal rules, and to large efforts to reduce public deficit since 2012. This continued until regional debt levels stabilised starting in 2016. However, in 2020 it increased again to reach 33.5% of GDP (compared to 31.8% in 2016). Subnational government debt is, as of 2020, slightly below the OECD average for federal countries (36.6% of GDP and 26.5% of total public debt in 2020).

ACs hold 88% of subnational government debt in 2020, against 12% for provincial and municipal governments. Regional debt, which accounted for 29.7% of GDP in 2020 (+2.6 percentage points in comparison with 2016), is composed primarily of loans (78.6%, an increase of 3.1 pp since 2016) and bonds (14.8%, a 2.8 pp decrease since 2016), and the rest is made up of other accounts payable (6.6%). Overall, 98% of bonds were issued by regional governments, and more than half of the regional debt was held by the central government. Debt ratios vary greatly across regions. As of 2020, debt levels as a percentage of regional GDP ranged from 16% (Madrid) to 48.5% (Valencia).

Local debt, on the other hand, has kept decreasing over the past decade, accounting for 3.7% of GDP as of 2020 (compared with 4.5% in 2016). Local debt includes financial debt (52.7%), primarily made up of loans (95.5%), and other accounts payable (47.3%).

Subnational governments at all levels have recently started to access green financing tools, such as green bonds. Municipalities can issue green bonds to finance their debt up to a 2.5% ceiling, while provincial governments and ACs can go as high as 20%. The Community of Madrid and the City of Barcelona have already issued sustainability bonds, and the Junta of Andalucía explicitly incorporates green bonds as part of its Sustainable Finance Framework.

TERRITORIAL MANAGEMENT OF THE CRISIS: Given the rapid spread of the COVID-19 throughout the country, the Spanish government decreed a nation-wide state of emergency on March 14, 2020 resulting in a lockdown of the population, and later, in the suspension of all non-essential activities. Congress authorized successive extensions of the state of emergency, which lasted until 9 May, 2021. The crisis management was coordinated by the central government through the Council of Ministers and the Alarm State Managing Board, consisting of the Ministries of Health, Interior, Defence and Transport under leadership of the Prime Minister. Scientific support to the Managing Board was provided by the Ministry of Science and Innovation. Some Spanish regions took earlier lockdown measures than the central government for strongly affected municipalities and by March 14, closing schools, shops and cultural institutions (e.g. Community of Madrid, Basque Government and the Government of La Rioja).

Subsequently, the Council of Ministers approved a de-escalation plan in four phases to gradually reduce the confinement. The passage to each of the successive phases has been carried out asymmetrically in each AC and province, according to the epidemiological situation. Mobility between provinces would continue to be restricted until the end of the four phases. As of March 2021, the vast majority of regions maintained some measures during the state of emergency (like perimeter closures and curfews), but in communities such as Andalusia, Aragon, Asturias, Cantabria, and Catalonia, the capacity and opening hours of bars and restaurants were extended. Other regions, such as Castilla-La Mancha, Extremadura and La Rioja, relaxed curfews before the end of the state of emergency.

The central government established an inter-territorial commission to support cooperation between the different levels of government. Regional coordination committees were also created, chaired by the regional ministers of health and comprising representatives from different medical specialties including emergency units, ambulance service, internal medicine, intensive medicine, primary care, microbiology, preventive medicine, occupational health and geriatric departments. While autonomous communities normally have full healthcare responsibilities, the healthcare competences of the ACs were superseded and concentrated in the Ministry of Health at central government level during the State of Emergency. This enabled the central government to ensure the coordination of healthcare measures, and to impose measures such as the adoption of extraordinary public health or service management measures.

EMERGENCY MEASURES TO COPE WITH THE CRISIS AT THE DIFFERENT LEVELS OF GOVERNMENT: The Royal Decree-Law 8/2020 on extraordinary urgent measures to face the economic and social impact of COVID-19 included a measure to support local finance. Local governments were allowed to use their surplus to finance expenses corresponding to social services. At the regional level, a dedicated fund (COVID fund) was established for the ACs to combat COVID-19 and mitigate the emergency’s economic effects. The fund was earmarked to three main spending categories: healthcare (EUR 9 billion), education (EUR 2 billion) and compensating for the decrease of economic activity (EUR 5 billion). Funding was distributed based on a variety of criteria, including incidence of the virus in the territories, intensive care admissions, and population. This COVID-19 fund was not accounted as regional public debt, and Autonomous Communities were responsible for its allocation within their territories.

Individual Autonomous Communities had, in parallel, developed support schemes for the municipalities within their jurisdictions. The Catalan Government developed funding stream to cover local administrations’ expenditures related to COVID-19. Andalusia unveiled an Exceptional Financial Collaboration Programme, dedicated to local entities with a population equal to or less than 1 500 inhabitants, with the aim to reinforce and guarantee the provision of public services during the crisis.

IMPACTS OF THE CRISIS ON SUBNATIONAL GOVERNMENT FINANCE: Despite the severe impact of the pandemic on economic activity (10.8% drop in GDP), subnational government revenue increased between 2019 and in 2020 (+4%), mainly driven by the Autonomous Communities, which saw their revenue grow by 9%. On the contrary, the municipalities registered a fall of 6% in their income. In general, the revenue component that increased the most was grants and subsidies (+12% for total subnational government revenue). However, the distribution of subsidies was very unequal, which is reflected in the increase in subsidies by type of subnational government: ACs experienced an increase in grants of 15% (see above, “COVID funds), whereas for municipalities, grants increased by only 1 %. Specifically, autonomous communities received funding from the COVID-19 Fund and from the extraordinary fund for basic benefits of social services.

On the other hand, municipalities recorded the largest decreased in tax revenue (-10%), compared with an increase of 1% for tax revenues of ACs. Overall, subnational government tax revenue fell by 3%, driven primarily by decreases in taxes on production and imports (- 20.9%), and in the tax on capital, that fell by 4.3% in 2020. in 2020. Similarly, property income and tariffs and fees fell at both the regional (-41% and -7% respectively) and municipal levels (-23% and -17% respectively).

On the spending side, there was a general increase of 3% of subnational government expenditure between 2019 and 2020, driven by the autonomous communities, whose expenditure increased by 6%. Municipalities, on the contrary, had to reduce their spending levels (-6% in 2020), encompassing all spending components. Autonomous communities increased the most their expenditure in direct investments (+13%), intermediate consumption (+10%, social spending (+5%) and wages (+5%). Most of this increased spending occurred in areas directly linked to COVID. In fact, according to the Banco de España and the Instituto de Análisis Económico, non-COVID expenses recorded a lower level of execution in 2020 than the ones observed in previous years.

Overall, the financial situation of the autonomous communities was better than expected, with a budget deficit accounting for -0.21% of GDP (0.39 points lower than expected). According to the Banco de España, in the absence of aid from the COVID fund, the deficit would have been higher in most ACs (around 1.7% of GDP). In fact, eight of the seventeen ACs passed from a budget deficit in 2019 to a surplus budget situation in 2020 – Andalusia, Aragón, Asturias, the Balearic Islands, Cantabria, Castilla-La Mancha, Castilla y León and La Rioja –. Regarding municipalities and provinces, they recorded a surplus of 0.26% GDP (compared to the initial budget balance forecast). Overall, the debt of municipalities was reduced between 2019 and 2020 (-3%), whereas ACs increased their debt levels by 2%.

ECONOMIC AND SOCIAL STIMULUS PLANS: The most important COVID-19 stimulus support package in Spain was designed in the framework of the European post-pandemic economic recovery strategy, through the Recovery and Resilience Facility (RRF) of Next Generation EU mechanism. Spain national recovery and resilience plan, submitted in April 2021, consists of 112 investments and 102 reforms. They will be supported by EUR 69.5 billion in grants. 40% of the plan supports climate objectives, and 28% of the plan focuses on the digital transition. Additionally, Spain can access a maximum of EUR 70,000 million in loans that the RRF makes available to support the necessary investments and reforms. Currently, the Government is working on an addendum to the Plan, which includes the request for loans from the RRF within the 2023 budget cycle. Possible investment projects are being identified, with the objective of allocating 20% of them to digital investment and 37% to green transition, while other funds are allocated to social protection.

When designing the plan, the Spanish government consulted with national and regional social partners and stakeholders. According to information from March 2022, the autonomous communities have already received more than EUR 11 million for the development of the Plan's programs. The distribution criteria are set during sectoral conferences, and are based mainly on demographics. Thus, Andalusia, Catalonia and Madrid account for 42% of the allocated funds, as they represent up to 48% of the total national population.