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Should Large Spanish Municipalities Be Financially Compensated? Costs and Benefits of Being a Capital/Central Municipality

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  • Nuria Boch Roca

    (University of Barcelona)

  • Marta Espasa

    (University of Barcelona)

  • Daniel Montolio

    (University of Barcelona)

Abstract

We determine the costs and benefits of being a capital or central municipality, where central costs are understood to be incurred specifically as a result of the problems large municipalities located at the centre of an urban agglomeration face (including costs associated with social issues, immigration, commuting and diseconomies of scale) and capital costs result from the presence of regional and/or central government institutions in the municipality (loss of revenue or increase in expenditure because of activity substitution). However, these two qualities might also be beneficial to municipalities (resulting in a direct increase in their revenue or fiscal capacity). By estimating an equation of the expenditure needs and the fiscal capacity of Spanish municipalities with more than 75,000 inhabitants, we find that the central costs incurred by large municipalities are offset by their greater fiscal capacity, but that the same is not true for municipalities that serve as political/administrative capitals.

Suggested Citation

  • Nuria Boch Roca & Marta Espasa & Daniel Montolio, 2014. "Should Large Spanish Municipalities Be Financially Compensated? Costs and Benefits of Being a Capital/Central Municipality," Hacienda Pública Española / Review of Public Economics, IEF, vol. 211(4), pages 67-91, December.
    • Handle: RePEc:hpe:journl:y:2014:v:211:i:4:p:67-91
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    References listed on IDEAS

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    More about this item

    Keywords

    Local financing; large municipalities; central and capital costs and benefits; expenditure needs; fiscal capacity.;
    All these keywords.

    JEL classification:

    • H72 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Budget and Expenditures
    • H77 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Intergovernmental Relations; Federalism
    • R51 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Regional Government Analysis - - - Finance in Urban and Rural Economies

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