The Fiscal Policy of Autonomous Communities: Its Macroeconomic Effects and the Role of the National Fiscal Rule

The transposition of the EU economic governance framework to national legislation provides an opportunity to reform the subnational fiscal rule, especially with regard to its regional component. While compliance by autonomous communities has improved in the last decade, the current framework has not delivered on two key objectives of subnational fiscal rules for regional governments: avoiding procyclical public spending and ensuring debt sustainability. This paper makes the case for centering a revised fiscal rule on an expenditure growth target—consistent with the formulation of the EU framework—to ensure that spending by regional governments, particularly on health and education, remains mostly acyclical while also achieving debt-stabilizing regional fiscal policy.