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Ivie includes the Basque Country and Navarre—regions that currently enjoy 61% and 35% above average per capita funding—in its analysis of the solidarity agreement proposed for Catalonia

New IvieLAB document includes updates and expands on the previous report on the possibility of applying a generalized solidarity agreement system to all Spanish regions, similar to the one proposed for Catalonia

The lack of equity in the current regional funding system, which hasn’t been updated since 2014, has led to inequalities among the regions under the general regime of financing in Spain. The regions of Valencia, Murcia, Castile-La Mancha and Andalusia are at the bottom of the list in terms of resources available to provide basic services. However, all communities under the general regime are underfunded when compared to those under the special fiscal regime which is based on historical rights recognized in the Spanish Constitution. Navarre and the Basque Country benefit from an adjusted per capita funding that is 61% and 35% higher than the average for common-regime regions, respectively, due to certain privileges granted by special economic agreements (Concierto Económico for the Basque Country and Convenio Económico for Navarre), which were reinstated and formalized in the early 1980s.

The Ivie has recently published an IvieLAB report that updates and expands on the previous report on the possibility of implementing a generalized solidarity agreement system (Sistema de Concierto Solidario Generalizado-SCSG) to all autonomous communities, as proposed for Catalonia in the 2024 agreement between the between the Socialists’ Party of Catalonia (Partit de Socialistes de Catalunya-PSC) and the Republican Left of Catalonia (Esquerra Republicana de Catalunya-ERC). While the document does not propose the application of a fiscal pact model, it analyzes the conditions that such an initiative would have to meet in order to improve equity in the existing situation.

The study is based on the premise that a fair system—one that truly respects equal resources to provide similar services to all Spaniards, regardless of where they live—must include all autonomous communities. The study describes the steps that should be taken to achieve this goal, assuming that communities would collect all taxes within their territories, as proposed in the negotiations with Catalonia.

The first step toward a more equitable system is to distribute revenue between the State—to finance its actions in all territories—and the regional administrations. This requires estimating the contribution (quota) each region should make  to the State to ensure the financing of the services it directly provides to citizens. The report proposes that each region’s contribution to the State be based on the principle of equal fiscal effort, i.e., that their per capita income should be taken into account. Since the State also performs redistributive functions, it is reasonable for wealthier regions to contribute more. However, under the current system, this principle is not upheld: the contributions of the Basque Country and Navarre to general State expenditures are significantly lower than the average despite their high per capita income. Specifically, the Basque Country contributes the equivalent of 5.6% of its GDP and Navarre 7.1%, compared to the average of 9.3% for the regions.

The second step in building a more equitable system is to equalize the financial capacity of the autonomous communities after their contribution to the State. The analysis suggests that each region should allocate 75% of its remaining resources to an interregional solidarity fund, similar to the current Guarantee Fund. This mechanism would help equalize resources for essential public services in all territories. Unlike the current system, the Basque Country and Navarre would also be required to participate in the solidarity fund, just like the rest of the autonomous communities.

The study, conducted by José Antonio Pérez (Polytechnic University of Valencia) and Juan Pérez (Ivie), emphasizes that fiscal responsibility, equity, and solidarity must apply to all of Spain’s autonomous communities, including those with special tax regimes. The current exclusion of the Basque Country and Navarre from the general financing system results in disparities of up to 80 percentage points in adjusted per capita resources between the best- and worst-funded regions, namely, the Basque Country and the Valencian Community . This situation is incompatible with constitutional principles that reject economic or social privileges among regions.

The authors point out that the current dual financing system—comprising both the common and special regimes—allocates abundant resources to some regions with high per capita income (such as the Basque Country, Navarre, and La Rioja) but not to others (e.g., Madrid and Catalonia). It also provides limited resources to some lower-income regions (such as Andalusia, Murcia, Castile-La Mancha, and the Valencian Community), but not to others (Extremadura, the Canary Islands, and Cantabria).

If a model based on a solidarity agreement among all the autonomous communities, such as the one described, were implemented, the principle of ordinality would be respected: regions contributing the most per capita would continue to receive the most, but the current disparities between communities would be significantly reduced. Adhering to solidarity criteria like those outlined in the report would allow for a substantial reduction in the current inequalities in adjusted per capita funding: from 80 to 15 percentage points. While the current gap in adjusted per capita funding exceeds €2,500 between the Basque Country and the Valencian Community, under this model all regions would receive similar levels of funding to provide public services to their citizens, ranging between €3,000 and €4,000 per adjusted inhabitant.

Transitioning to a more equitable system that reduces inequalities means that some regions gain resources while others lose them. Specifically, the Basque Country would forgo €4.89 billion and Navarre €854 million, whereas Andalusia and the Valencian Community would gain €2.353 billion and €2.209 billion, respectively. Wealthier regions currently close to the average, such as Catalonia and Madrid, would also see improvements, though less pronounced than those in underfunded regions.

To offset the initial losses for currently better-funded regions, the Ivie report assesses the possibility of setting up a temporary fund to facilitate the transition and ensure financial stability for the affected regions. The estimated cost to the State would be €8.538 billion, or 0.6% of GDP. The authors argue that this would be a reasonable cost if it enables a gradual realignment of regional financing with the principles of equity and solidarity.