Spain: Selected Issues

This Selected Issues paper focuses on Spain’s fiscal policy of autonomous communities, its macroeconomic effects, and the role of the national fiscal rule. This paper argues for centering a revised fiscal rule on an expenditure growth target, aligned with the EU framework, to keep regional government spending—especially on health and education—largely acyclical while ensuring debt stabilization. Using descriptive and econometric analysis, it evaluates fiscal policy of Spain’s autonomous communities. Section B reviews principles of fiscal federalism and subnational fiscal rules in Spain, highlighting lessons from the Global Financial Crisis and the need to avoid procyclicality and safeguard debt sustainability. The paper analyzes data for 2004–2024, finding that regional spending has been procyclical, declining during downturns and failing to stabilize debt. Health and education outlays are more procyclical than in peer euro area countries, where such spending is typically stable over the cycle. Results show regional policy is more procyclical than central government policy. The paper concludes that an enhanced rule requires strong institutional design and broad political ownership.