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Public Debt in the Spanish Municipalities: Drivers and Policy Proposals
Mihaela Simionescu1, Javier Cifuentes-Faura2
1Institute for Economic Forecasting of the Romanian Academy, Bucuresti, Romania.
Evaluation Review
|August 4, 2023
Summary
Spanish municipal debt increased due to COVID-19. Promoting economic growth and job creation, especially for young people, is key to reducing this public debt.
Area of Science:
- Economics
- Public Finance
- Regional Studies
Background:
- The COVID-19 pandemic worsened local debt in Spanish municipalities, impacting national and eurozone financial stability.
- Understanding the drivers of per capita public debt across different municipal sizes is crucial for effective policy.
Purpose of the Study:
- To identify the determinants of per capita public debt in Spanish municipalities, categorized into four size groups.
- To analyze the causal relationships between economic, demographic, and political factors and municipal debt.
Main Methods:
- Quantitative analysis using panel quantile regressions (MMQR) and mean group (ME) estimators.
- Application of the Juodis test for causality analysis in panel data (2011-2020).
- Inclusion of economic (GDP per capita, unemployment), demographic (age structure), and political (party, ideology, strength) variables.
Main Results:
- Short-run economic growth was identified as a common factor reducing local debt across most municipality groups.
- Differences were observed between clusters regarding factors influencing debt levels.
- Economic growth and unemployment significantly impact public debt in most groups, with political party being a key factor in municipalities of 5,001-20,000 inhabitants.
Conclusions:
- Empirical findings provide a basis for policy recommendations aimed at mitigating local debt in Spanish municipalities.
- Policy initiatives should prioritize fostering economic growth and employment, particularly for younger populations.
- Tailored strategies may be necessary, considering the varying debt drivers across different municipal sizes.
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