To avoid cessation aspirations by Catalonia and the Basque, Spain has undergone massive political and fiscal decentralization over the last three decades. However, the Catalonian independence referendum of October 2017 demonstrates that the autonomy granted to regional governments was not sufficient. Aside from a strong ethnic identity and cultural pride, the main grievance of the Catalonians is that Spain’s fiscal expenditure is far from equitable.

Spanish regions administer most taxes in their jurisdiction and are required to contribute an annual sum to the central government. The Spanish fiscal equalization program aims to reduce regional inequalities by increasing welfare expenditure in deprived regions regardless of their tax capacity.

While its population makes up only 16 percent of the total population of Spain, Catalonia’s GDP comprises 20 percent of national GDP. Yet, it receives only 11 percent of national expenditure. During the European Sovereign Debt crisis of 2011–2015, severe austerity measures obliged regional governments to borrow in order to cover their public expenditures. Paying €10 billion more than what reached their region, the Catalonian public debt to GDP ratio in 2017 stood at 35.3 percent, compared to Spain’s average of 24.2 percent in the same year.

Fiscal revenue and expenditure autonomy are requisites of regional political autonomy. To avoid future disputes, Spain may need to impose harder regional budget constraints and match spending needs with tax capacities for each of its jurisdictions.  

Question

How do you the think the European Debt Crisis has contributed to the fiscal problem in Spain and Catalonia? How can this be avoided in the future?