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The generalization of a financing system, such as the one proposed for Catalonia, could only solve existing problems if it is based on a transparent quota calculation and interterritorial solidarity, including chartered regions

Ivie has published a report, included in IvieLAB, outlining the characteristics of a generalized solidarity agreement for all the Spanish regions, both common and chartered, to improve regional funding

The Ivie has recently released a report within the IvieLAB program, in collaboration with the Valencian Regional Government, that evaluates whether a financing model inspired by the agreement negotiated between the Socialists’ Party of Catalonia (PSC) and the Republican Left of Catalonia (ERC) could effectively resolve the long-standing challenges of autonomy, sufficiency, and equity in Spain’s current financing model (SFA-2009). According to the authors—Ivie’s Research Director Francisco Pérez and Economist Juan Pérez—the effectiveness of such a model depends on how the solidarity agreement is implemented. They note that certain design choices could lead to meaningful progress in one or more of these areas, while others might result in stagnation or even deterioration.

To overcome the structural deficiencies of the SFA-2009 through a solidarity-based model, in which the Spanish regions manage their own tax revenues and then redistribute them among the State and other regional administrations, the report identifies several essential conditions. First, reaching an agreement on the total quota that all regions must contribute to the State. This consensus must be established  between reginal and central government and should guarantee financial sufficiency for both levels of administration. Second, a fair distribution criteria among regions must be determined. The reports considers three possible approaches. The first two, based on regional GDP or equal fiscal pressure, would favor wealthier regions as they would retain more resources. However, the authors prefer the third criterion, fiscal effort made by citizens based on per capita income, because the State also fulfills redistributive functions, and it is reasonable that those who have more should contribute more.

In the same vein, the analysis proposes that, once the portion corresponding to the State is allocated, each region should allocate 80% of its remaining resources to an interregional solidarity fund, which would at least equalize the resources available to deliver essential public services. The report recommends increasing the current Guarantee Fund from 75% to 80% of each region’s tax revenues, distributed based on adjusted population and territorial needs.

Finally, the study calls for a review of the financial privileges of chartered regions, advocating for their inclusion in the general system and increased contributions both to the State quota and interregional solidarity fund.

If implemented under these conditions, the Generalized Solidarity Agreement System (SCSG) could significantly reduce resource inequality among residents of the different Spanish regions currently in the system. However, the outcome would not necessarily align with the expectations surrounding the singular financing model proposed for Catalonia. While, Catalonia would benefit from improved funding, the gains would likely be more modest than some projections suggest. On the other hand, if that singular system were implemented as an agreement between the State and Catalonia that brought the region closer to a status similar to that of chartered communities, it would worsen the existing interterritorial inequalities rather than resolve them.

This analysis was presented during the RIFDE Conference (Network of Researchers in Regional Financing and Financial Decentralization in Spain)  held on May 20 in Santiago de Compostela.