This situation is a concern for both politicians and research. If the savings of public administrations are insufficient to finance public investment, the resulting budgetary imbalance gives rise to a public deficit ( Espinola, 2009).įrom the 1980s onwards, continued deficits in the finance of Spain’s public sector’s public sector have been observed, leading to increases in public debt. The government must establish a balance between the amount allocated to the various items of expenditure to meet the needs of citizens and revenues, mainly from taxes and social security contributions. The maintenance of the welfare state is conditional on the exercise of the public function being fundable. Furthermore, our findings have important implications for politicians, citizens and stakeholders. With this paper, we contribute to the scarce literature on deficit determinants by analyzing the determinants for Spanish municipalities. The results are robust to those based on mean group estimators. To reduce the budget deficit, the analysis shows that unemployment should be reduced and economic growth should be boosted. Political participation and right-wing political parties contribute to the growth of the deficit in the higher quantiles. Unemployment increases the deficit in both the short and long run. It is found that economic growth only has a long-term beneficial effect on the deficit as it reduces the deficit at all quantile levels except at the 10% quantile. In addition, the causality between the deficit and the explanatory variables is analyzed using the Juodis et al. The method of moments quantile regression (MMQ) and mean group (MG) estimator are applied for the overall sample and for each group of municipalities. The deficit at the municipal level for Spain is explained by considering several determinants covering socioeconomic and political dimensions, such as GDP per capita, unemployment rate, population, political participation, political sign of the ruling party or political force, among others. Therefore, the aim of this paper is to analyze the factors that explained the fiscal deficits of Spanish municipalities in the period 2011–2020. Understanding the determinants of fiscal deficits is justified by the fact that persistent deficits rapidly lead to the accumulation of public debt.
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