On the determinants of local government debt: Does one size fit all?

On he de e minan s o local go e nmen deb : Does one size i all?∗ Ma ia Te esa Balague -Coll Uni e si a Jaume I Diego P io Uni e si a Au ònoma de Ba celona Emili To osa-Ausina Uni e si a Jaume I and I ie No embe 14, 2013 Abs ac This pape analyzes he ac o s ha di ec ly in luence le els o deb in Spanish local go e nmen s. Speci ically, he main objec i e is o ind ou he ex en o which indeb edness is o igina ed by con ollable ac o s ha public manage s can in luence, o whe he i hinges on o he a iables beyond manage s’ con ol. The impo ance o his issue has in ensi ied since he s a o he c isis in 2007, due o he ab up decline o e enues and, simul aneously, o he s agna ion (o e en inc ease) in he le els o cos s acing hese ins i u ions ace. Resul s can be explo ed om mul iple pe spec i es, gi en ha he se o explana o y ac o s is also mul iple. Howe e , he mos in e es ing esul ela es o he a ying e ec o each co a ia e depending on each municipali y’s speci ic deb le el, which sugges s ha economic policy ecommenda ions should no be homogeneous ac oss local go e nmen s. Keywo ds: deb , local go e nmen , quan ile eg ession JEL Classi ica ion: D60, H71, H72, H74, H75 Communica ions o: Emili To osa-Ausina, Depa amen d’Economia, Uni e si a Jaume I, Campus del Riu Sec, 12071 Cas elló de la Plana, Spain. Tel.: +34 964387168, ax: +34 964728591, e-mail: [email p o ec ed] ∗All h ee au ho s a e g a e ul o he inancial suppo o Minis e io de Ciencia e Inno ación (ECO2010- 18967/ECON and ECO2011-27227/ECON). Ma ia Te esa Balague -Coll also acknowledges he inancial suppo o Fundació Caixa Cas elló-Bancaixa (P1.1B2012-07), and Emili To osa-Ausina is g a e ul o ha o Gene ali a Valenciana (PROMETEO/2009/066). The usual disclaime applies. 1. In oduc ion O e ecen yea s he p oblems o local easu y depa men s ha e inc easingly become a ocus o a en ion and conce n in se e al eu o a ea coun ies. Among he nume ous p oblems a ec ing hese depa men s, some o he mos se ious a e ela ed o high deb le els, which a e now a ocus o conce n o local poli icians, since i is equen ly he case ha he only way hey can ul ill hei commi men s is h ough bo owing. I also p esen s a p oblem o public adminis a ion manage s, as hey a e awa e ha highe le els o deb in hei local adminis a ions will lead o inc eased iscal p essu e. Poli icians a a na ional le el a e also conce ned, since indeb edness in nume ous local councils will ine i ably ha e an impac on he na ional economy. In he pa icula case o Spain, on which we ocus, local councils ha e become esponsible o a g owing numbe o powe s (al hough s ill much lowe compa ed o egions o comu- nidades au ónomas), wi h a co esponding inc ease in he unc ions hey pe o m, and esul ing in o highe expendi u e le els. In addi ion, hei basic esou ces a e o en insu icien o keep pace wi h he a e o g ow h o hei expendi u e needs (López-He nández e al., 2012).1These ci cums ances ha e led o high le els o indeb edness in mos local go e nmen adminis a- ions. Al hough he p oblem o local deb is ela i ely modes on a na ional scale, due o he lowe impo ance o he local public sec o compa ed o he o he public adminis a ions (cen- al and egional),2i has become a h ea o local go e nmen sol ency and mo eo e , may ha e a nega i e e ec on mac oeconomic inancial s abili y. The se e i y o hese issues has inc eased ema kably since he s a o he inancial c isis, which was ollowed by a eal economic c isis, esul ing in he bu s o he housing bubble, a deep ecession, and ising unemploymen , which mo e han doubles he a e age a e in he Eu opean Union (EU). This new mac oeconomic scena io has had a ema kable impac on he public sec o , leading o e y high le els o de ici ac oss all s a a o public adminis a ions conside ed, i.e. cen al, egional o local—al hough he le el o o al deb is s ill lowe han ha o many o he EU coun ies. In his new economic con ex , local go e nmen s ha e no been le unsca hed, and o mos o hem he inancial di icul ies a ec ing hem p ac ically since he Spanish cons i u ion was app o ed in 1978 ha e been exace ba ed. The c isis has led o a sha p decline in municipal e enues while, simul aneously, hei cos s ha e ei he 1See also Za a-Gómez e al. (2013) and González-Gómez e al. (2011) o ela ed p oblems o Spanish munici- pali ies. 2The Spanish egions o comunidades au ónomas (au onomous communi ies) co espond o le el NUTS3 o he Eu opean Union (Nomencla u e o Te i o ial Uni s o S a is ics), whe eas municipali ies co espond o le el LAU2 (Local Adminis a i e Uni s). 1 s agna ed o e en inc eased, which impels local go e nmen s o ind new ools o dealing wi h he new inancial scena io (B usca Alijalde e al., 2012). The e o e, i seems easonable o design policies which ake in o accoun he majo sou ces o deb o Spanish municipali ies. Se e al con ibu ions ha e been analyzing he ac o s in luencing pas le els o local go - e nmen deb , some examples o which include Inman and Fi s (1990), o Kiewie and Szaka y (1996). These and ela ed s udies ha e deal wi h he gene al issue o moni o ing local go e n- men deb . Rela ed o his li e a u e, o he ele an con ibu ions ha e conside ed mo e speci ic ques ions such as he need o gua an ee a balanced budge in he long un (Po e ba, 1997), o p ese e he p inciple o in e gene a ional equi y when issuing deb (Musg a e, 1989), o o minimize he use o deb as a poli ical ins umen o p e en a disp opo iona e ise o axes in cons i uencies (Cabasés e al., 2007). The li e a u e explo ing explici ly he de e minan s o municipal deb , howe e , is no es- pecially la ge, al hough some o he con ibu ions a e ele an . C oss-coun y s udies a e i ually nonexis en , which in oduces ce ain di icul ies when e iewing he in e na ional li e a u e. Some p e ious ele an s udies ocusing on speci ic coun ies include, among o h- e s, C op and Wendel (1998), who examine he UK case, Ashwo h e al. (2005) and Bas iaens e al. (2001), who analyze Flemish municipali ies, o Babe and Go e (2008) and B idges (2005), who ocus on US local go e nmen s. Taking his backg ound in o conside a ion, he objec i e o his pape is o analyze whe he ce ain economic, poli ical o social ac o s in luence le els o deb in Spanish local go e nmen adminis a ions. In his pa icula con ex , Guillamón e al. (2011) p o ide a ecen summa y o he li e a u e ocusing on di e en aspec s o municipal deb . Ou con ibu ion o his g owing li e a u e is wo old. On he one hand, we a emp o e eal he ex en o which he use o deb s ems om ac o s ha can be con olled, and o e which manage s can ha e an in luence, o o he wise. In his gene al con ex , he exis en li e a u e inds some ele an a iables explaining he le el o municipal deb . On he o he hand, we p o ide a di e en pe spec i e on how o e alua e he impac o each explana o y a iable on municipali ies’ deb . Speci ically, he a ailable empi ical li e a u e, nei he applied o he Spanish case o o di - e en scena ios, has no conside ed he possibili y ha he e ec o ce ain a iables could depend on he le el o deb o each pa icula local go e nmen , since all o hem ocused on he obse able e ec s ega ding he a e age le el o deb . As a esul , i migh well be he case ha a a iable wi h a speci ic a e age impac could play a e y di e en ole depending on how indeb ed is he municipali y unde sc u iny. Fo ins ance, when ela ing he le el o municipal 2 deb o iscal capaci y, o local go e nmen s wi h ew deb s we can expec ha he g ea e he iscal capaci y—i.e. he mo e e enues coming om he espec i e municipal esou ces— he lowe he need o aise unds om ex e nal bo owing. On he opposi e side, local go e n- men s ha ing high iscal capaci y can make majo in es men s because hey may ind easie o aise money by inc easing hei le el o deb beyond he easonable limi s o municipali ies p esen ing a poo iscal capaci y. Summing up, in con as o he exis en li e a u e, we p o ide a di e en pe spec i e in o de o disen angle whe he o no he a iables explaining he le el o municipal deb can be con olled by manage s. Ou esul s can be help ul when designing s a egic plans o educe he le el o deb be- cause he i s decisions o be made should conce n o a iables ha ha e a signi ican impac and, in one way o ano he , a e easily in luenced by public manage s. In pa icula , we ound ha o mos o he a iables, he e exis ed a a ying e ec on deb , which la gely con ibu ed o explain some o he “mixed” indings in he li e a u e; in o he cases, he e ec had e en opposi e signs o municipali ies wi h di e ing le els o deb . Ob iously, he combina ion o he wo dimensions (deg ee o con ollabili y and analysis o a ying le els o deb ) in luences he le el o se e i y o he p oblems caused by he exis ence o high le els o deb in municipali ies. The pape is s uc u ed in six sec ions. A e his in oduc ion, sec ion 2 b ie ly ou lines he heo e ical amewo k ega ding he de e minan s o local go e nmen deb , and hei likely impac s, in o de o disco e whe he manage s can exe any in luence on hem. A e p esen ing he empi ical model in sec ion 3, we p o ide in o ma ion on he selec ed a iables in sec ion 4. The esul s o he analysis a e analyzed in sec ion 5 and, inally, sec ion 6 epo s he main conclusions o he s udy. 2. Theo e ical amewo k: o ces ha in luence local go e nmen s’ public deb The li e a u e on he de e minan s o municipali ies’ deb is he e ogeneous in se e al espec s. Gi en ha di e ences can be qui e ema kable, ollowing C op and Wendel (1998) we ha e conside ed h ee gene al ypes o o ces ha can impac on municipal deb policies, namely, inancial (o economic), poli ical, and social o ces. Some o hem can be con olled by local go e nmen s, bu o he s lie beyond hei in luence. Howe e , due o he inc easing impo - ance o deb o g ow h in many ci ies a ound he wo ld, and also due o he gene al inc ease in indeb edness (which clashes wi h he aus e i y policies being implemen ed in many Eu o- pean coun ies), i is impo an o unde s and which ac o s a e ha ing a s onge e ec on municipal deb pa e ns, and hei likely impac on ci y policies. 3 2.1. Fiscal/ inancial o ces The i s o hese inancial co a ia es can be b oadly de ined as “capi al expendi u e”. We may e m i INVEST, since hese expendi u es a e included in hose municipal budge ca ego ies co esponding o physical capi al in es men s. Speci ically, we will de ine i as o al capi- al expendi u es (capi al ans e s plus acquisi ions o capi al goods) di ided by popula ion. Howe e , he a iable is pa ially ambiguous, since he e is no s anda d de ini ion o wha i exac ly ep esen s—e en in he Spanish case. Fo ins ance, some au ho s such as Beni o and Bas ida (2004, 2005) de ine i as a a io o eal in es men s and capi al ans e s o o al expen- di u es. Howe e , o he au ho s (Vallés e al., 2003; Cabasés e al., 2007) calcula e i as he a io o eal in es men o GDP, and e e o his a iable as in e gene a ional equi y—since u u e gene a ions will also bene i om he capi al in es men s ha cu en gene a ions may make. In con as , Escude o (2002) de ines i as he consolida ed non- inancial ixed asse s pe capi a, whe eas Fe nández Lle a e al. (2004) con ine he con en s o his a iable o eal in es men s only. In gene al—o , mo e exac ly, on a e age—we can expec a posi i e ela ionship be ween deb and his a iable. This occu s in he pa icula case we a e dealing wi h, as Spanish law3 es ablishes ha local go e nmen s can eso o long o sho e m public o p i a e c edi in any o i s o ms in o de o inance hei in es men expendi u e. The exac de ini ion and desc ip i e s a is ics o his a iable a e p o ided in Tables 1 and 2, espec i ely. The second o he selec ed a iables is ne sa ings, which we may e e o as NETSAV, and can b oadly be desc ibed as he a ailable unds municipali ies can use o conduc hei own in es men s. I co esponds o he di e ence be ween g oss sa ings minus amo iza ion expenses. G oss sa ings (which can be de ined, ollowing Fe nández Lle a e al. (2004), as he di e ence be ween cu en income minus cu en expenses) indica e local go e nmen s’ capaci y o co e inancial amo iza ion. Hence, he lowe he le el o g oss sa ings, he highe will be he need o eso o bo owing. P e ious con ibu ions using his a iable, al hough conside ing a sligh ly di e en de ini ion, a e B usca and Lab ado (1998), o Cabasés e al. (2007). The o me au ho s conside a g oss sa ings index in hei use o he a iables, whe eas he la e de ine i as he a io o ne sa ings o GDP. In his espec , Cabasés e al. (2007) also no e how local go e nmen s ha ha e an aus e e cu en expendi u e policy, ha ob ain highe cu en income, o ha plan deb amo iza ions app op ia ely, ha e a g ea e inancing capaci y, and a e less likely o eso o bo owing o und hei in es men expenses. The e o e, we may hypo hesize a nega i e ela ionship 3LRHL, Ley Regulado a de Haciendas Locales, Law 39/1988 Decembe 28 h. 4 be ween he le els o deb and ne sa ings; in o he wo ds, when an ins i u ion has posi i e ne sa ings, he need o eso o bo owing migh be, cæ e is pa ibus, lowe . Some p e ious con ibu ions in he pa icula case o he deb le els o Spanish municipali- ies ha e conside ed a a iable ha co esponds o he a io o non- inancial su plus o de ici . We will e e o his a iable as BUDGET which, in accoun ing e ms (i.e. in e ms o budge ca ego ies) can be b oadly de ined as he di e ence be ween he sum o he ne ecognized expendi u es and he sum o ne ecognized e enues. Howe e , his a iable has been de- ined in di e en ways in he li e a u e. Fo example, whe eas Beni o and Bas ida (2004, 2005) calcula e i in ela i e alues, B usca and Lab ado (1998) conside o al budge a y e enues and expendi u e—in o he wo ds, he di e ence be ween o al budge a y e enues and o al budge a y expendi u e, wha hey e m budge a y de ici . Al hough he speci ic de ini ion o his a iable migh be subjec o a ious in e p e a ions, he sign o he impac on he le els o deb a e no . I non- inancial expendi u es a e highe han non- inancial e enues, he e will be a non- inancial de ici and, he e o e, i may be expec ed ha he local go e nmen will ha e o go u he in o deb in o de o balance such a de ici . The e o e, i we conside his a iable as he a io o non- inancial budge expendi u e o non- inancial budge e enue, which we will e e o as BUDGET, i s ela ion o deb should be posi i e, since local go e nmen s will u n o his esou ce mo e in o de o balance he non- inancial de ici . The li e a u e has also been conside ing a a iable e lec ing each municipali y’s own iscal capaci y, which is usually de ined as he a io o di ec axes, indi ec axes, and e enues om o he axes o all expendi u es. I indica es he pe cen age o o al e enues (excluding indeb edness) ep esen ed by municipali ies’ own esou ces, and some au ho s such as Vallés e al. (2003) e e o his a iable as “ iscal esponsibili y”—al hough hey de ine i sligh ly di e en ly, di iding by GDP. These au ho s poin ou ha he ela ionship be ween own iscal capaci y, which we may e e o as FISCCAP, and he le el o deb is unclea since, in p inciple, municipali ies ha ha e mo e o hei own esou ces will be unde less p essu e o bo ow. Howe e , he opposi e e ec may occu , as municipali ies wi h mo e o hei own esou ces will ace lowe inancial isks and will he e o e be g an ed ce ain ad an ages when accessing loans. Finally, amongs he inancial a iables he li e a u e has also included wha we could e e o as “expendi u e commi men ” (EXPCOMM), which would co espond o he sum o pe sonnel and inancial expendi u es di ided by o al expendi u es. Acco ding o some 5 au ho s such as Fe nández Lle a e al. (2004), he quan i ies in he nume a o a e usually e y igid ( hey a e especially di icul o educe), a leas in he sho un and, he e o e, gi en such an in lexibili y, municipali ies migh be impelled o issue deb . The e o e, he link we migh expec be ween his a iable and he le els o deb is posi i e. 2.2. Socioeconomic o ces The second se o a iables we will conside can be b oadly de ined as socioeconomic a iables. In his case, he numbe o a ailable s udies om which o choose he co a ia es is b oade , as mos o he a iables included in his ca ego y ha e a mo e s anda d de ini ion. I ou dependen a iable we e deb , wi hou di iding i by popula ion, one migh conside as a key de e minan he size o he municipali y, measu ed by i s popula ion. In he li e a u e he as majo i y o au ho s conside ha he e ec o his a iable on deb should be posi i e, since municipali ies wi h a highe numbe o inhabi an s a e obliged o p o ide mo e se ices, as es ablished by he Spanish law on local go e nmen s. Beni o and Bas ida (2004, 2005), Fa nham (1985), o Fe nández Lle a e al. (2004), among many o he s, ha e pu o wa d his a gumen . Howe e , Escude o (2002) conside s ha i s e ec is ambiguous and unclea , gi en ha economies o diseconomies o scale in in es men s can al e he sign, depending on how he municipali y’s size is classi ied as es ablished in he Law on Local T easu y Depa men s. In addi ion o his, conside ing size i sel does no allow di ec compa isons among municipali ies o di e en sizes. The e o e, in bo h models conside ed we will be di iding by popula ion and, consequen ly, i canno en e he analysis as an explana o y ac o . Apa om popula ion, some au ho s (Beni o and Bas ida, 2004, 2005) ha e included in he model he le el o ou ism (TOURISM). Tou is municipali ies mus ace highe expendi u e on in as uc u es and a highe demand o se ices han o he ci ies and, as a esul , hey will need o bo ow mo e in o de o mee his addi ional expendi u e. The expec ed sign o his a iable wi h ega d o deb le el should he e o e be posi i e. The ou ism a iable has been used no only by Beni o and Bas ida (2005) and Beni o and Bas ida (2004), who in oduced wo dummy a iables o di e en ia e be ween coas al and inland municipali ies, bu also by Escude o (2002), who used he ou ism index om he “Anua io Económico de España” (Spanish Economic Yea book) published by La Caixa Founda ion.4 P e ious s udies ha e also conside ed pe capi a income. The link wi h he le el o mu- 4See h p://www.anua ieco.lacaixa.comunicacions.com. 6 nicipal deb is explained, among o he s, by Fa nham (1985), who indica es ha his a iable would be e lec ing he in luence o a posi i e income elas ici y o demand o capi al goods, which would imply a posi i e link be ween his a iable and deb . Howe e , he e is no o al consensus on his poin , and he expec ed sign o his a iable is pa ly deba able; while some au ho s such as Clinge maye and Wood (1995) o Kiewie and Szaka y (1996) conside i s e ec o be posi i e, o he s such as Adams (1977) claim a nega i e ela ionship. This a iable, also a ailable h ough he Spanish Economic Yea book, is es ima ed on he base o a ailable household income igu es by p o ince p o ided in he INE5Regional Ac- coun ing sec ion. In his pa icula Spanish case, p e ious s udies conside ing his in o ma ion include Beni o and Bas ida (2005), Beni o and Bas ida (2004), Cabasés e al. (2007), Escude o (2002), o Vallés e al. (2003), among o he s, who ha e used pe capi a income le el as a possible indica o o economic le el. In ou pa icula s udy we will no use economic le el exac ly since i is no longe a ailable bu a he he le el o economic ac i i y, which we will e e o as ACTIVITY. Fo yea 2008 onwa ds, only he a iable measu ing economic ac i i y is a ailable. This is he one we use and, in addi ion, we conside ha i s link wi h a municipali y’s possible deb le el is s onge han when conside ing pe capi a income, as hose local go e nmen s ope a ing in en i onmen s whe e he gene al economic ac i i y is mo e in ense will ha e o p o ide hei cons i uencies wi h mo e and, p obably, mo e complex se ices, which gene ally imply highe cos s. The li e a u e has also been conside ing he densi y o he municipali y (DENSITY), mea- su ed as inhabi an s pe squa e kilome e . Se e al ecen con ibu ions ha e conside ed he ela ion o his, o ela ed a iables, wi h municipali y deb . Fo ins ance, acco ding o Ho as- Rico and Solé-Ollé (2010), he u ban spa ial s uc u e o many Spanish ci ies, measu ed as u banized land pe pe son, no only has an en i onmen al impac , bu also a majo impac on municipal inances. Beni o e al. (2010) also conside simila issues. Speci ically, hey e alua e he impac o u ban sp awl on municipal expendi u es, inding ha he highe he popula ion densi y, he lowe he o al expendi u es and cu en expendi u es pe capi a which, in p inci- ple, would lead o lowe le els o deb (nega i e ela ionship). This inding, in he opinion o Beni o e al. (2010), would a o hose oices asking o “sma e ” g ow h in municipali ies. 5“Ins i u o Nacional de Es adís ica” (Spanish Bu eau o S a is ics). 7 2.3. Poli ical o ces Nume ous s udies ha e associa ed aspec s o a poli ical na u e (which we will e e o as poli - ical ac o s) wi h deb , such as poli ical agmen a ion, ideology (p og essi e o conse a i e) o he leng h o ime in powe . Al hough i is a highly nuanced ques ion, he numbe o con ibu ions in he ield is ema kable, and hese s udies ha e been applied o e y di e en con ex s. As indica ed in Beni o and Bas ida (2004), poli ical heo y has adi ionally claimed ha le wing go e nmen s a e mo e lax ega ding go e nmen al inancial discipline. The e o e, his ype o go e nmen would ad oca e a bigge public sec o , gene ally wi h mo e powe s, han igh wing go e nmen s, which would ul ima ely become mo e indeb ed. Al hough a subs an ial numbe o s udies ha e es ed and co obo a ed his heo y (see, o ins ance Blais and Nadeau, 1992; Dickson and Yu, 1997; Galli and Rossi, 2002), o he s ha e ound he link was no signi ican (see, o ins ance, Abizadeh and G ay, 1993). In con as some s udies, albei ewe in numbe , conclude ha igh -wing go e nmen s accumula e mo e deb when acing a highe p obabili y o de ea ; one example is Pe e sson-Lidbom (2001), who examines deb accumula ion among local go e nmen s in Sweden. O he s udies ha e also ocused on ela ed issues such as poli ical agmen a ion, o how long he go e ning pa ies emain in powe . Fo example, Ashwo h e al. (2005) analyze how g ea e poli ical agmen a ion leads o highe le els o deb and public de ici . Howe e , in hei s udy on a sample o 48 s a es in he USA, Clinge maye and Wood (1995) ound ha di ided go e nmen did no lead o highe olumes o deb in he long e m, and Bunch (1991) ound ha when he same pa y emains in powe o a ious yea s ( ega dless o poli ical ideology) hey c ea e public en i ies o p o ide loans in o de o ge ound deb es ic ions. Un o una ely, ou da abase did no con ain in o ma ion on hese a iables and, he e o e, hei use had o be disca ded. We will e e o his a iable as POLITICAL, which is a dummy a iable aking he alue o 1 o municipali ies go e ned by le -wing pa ies. The e a e also some Spanish egions (Na a e and he Basque Coun y) which a e classi- ied unde a special o al egime, which essen ially gi es hem mo e independence in e ms o managing ans e ed axes and powe s. In e ms o municipali ies, he minimum se ices ha he local go e nmen s o hese egions mus supply is di e en om hose ha he es o Spanish municipali ies mus p o ide. The e o e, one migh hypo hesize ha hese disc epan- cies u n in o di e ences in e ms o le els o municipali ies’ indeb edness. In ou pa icula case, we will e e o his a iable as FORAL, and we will de ine i as a dummy a iable aking 8 In he case o FORAL and POWERS, he nuances wi h espec o OLS a e mo e ma ked. Whe eas he a iable FORAL shows no pa icula pa e n o OLS ( he e ec was low, and no signi ican ), o quan ile eg ession (Table 3) he nega i e e ec becomes posi i e, and non-negligible) o he highes quan iles (τ=.90, τ=.95). Howe e , in his case he e ec is no signi ican . Ye signi icance ac ually exis s o some quan iles, in his case he lowes ones (τ=.05 and τ=.25). Taking in o accoun ha FORAL is a dummy a iable aking he alue o 1 o he o al egions (Na a e and he Basque Coun y), i would indica e ha hose municipali ies wi h he lowes le els o deb a e loca ed in hese egions. In he case o he municipali ies wi h he highes le els, he e ec is no signi ican . Finally, he beha io o he decen aliza ion a iable (POWERS) is pa ly simila o ha ound o FORAL, since he sign o he e ec a ies wi h he condi ional dis ibu ion o deb . In his case, howe e , he e a e mo e quan iles wi h a posi i e sign, and wi h signi ican e ec s. Since POWERS akes he alue o 1 o he municipali ies wi h ewe powe s, a posi i e e ec indica es ha he municipali ies wi h ewe powe s ha e highe le els o deb . Resul s in Table 3 indica e his is ac ually he case o hose municipali ies wi h mo e deb , co esponding o he highes quan iles, and his e ec is e y s ong. In con as , o hose municipali ies wi h lowe le els o deb , co esponding o he lowes quan iles, he e ec is he opposi e, and mo e modes in magni ude. The e ec s o he h ee poli ical a iables conside ed a e isually co obo a ed in Figu e 3, which clea ly shows clea ly no iced how he e ec o POLITICAL is p esen o mos o he selec ed quan iles, whe eas in he case o FORAL i only holds o ew o hem. In he case o POWERS, his e ec is o he opposi e sign (albei signi ican ) o bo h ails o he dis ibu ion o deb . The esul s om he OLS and quan ile es ima ion help us o de ec he asymme ic si ua ion o deb s in Spanish local go e nmen s. On he one hand, municipali ies ha ing a low le el o deb s seem o be a ec ed by he o e all economic ac i i y, bu no by he ou ism ac i i y. The equi emen s conce ning he le el o in es men s do no appea o ’d i e’ inc eased le el o deb s. In o he e ms, he alloca ion o in as uc u es seem o be inanced wi hou equi ing unds om inancial ins i u ions, which helps hese municipali ies o a oid inancial p essu es. Cases wi h such cha ac e is ics can be aken as a ’bes p ac ice’ model on how o manage he equi emen o he ex e nal en i onmen wi h an adequa e s uc u e o con ollable budge a iables (as he eg esso s conce ning ne sa ings indica e). Con on ing he p e ious case, local go e nmen s ha ing a high le el o deb s appea o 15 be in luenced bo h by ou ism and economic ac i i ies, and by ope a ing wi h mo e powe s in a decen alized en i onmen , which can imply he equi emen o o e a mix u e o mo e sophis ica ed se ices o hei ci izens. Fo hese municipali ies, he in es men s inc ease he le el o deb s because con ol o he budge a y a iables (i.e. he le el o ne sa ings) does no seem o educe he equi emen o aise inancial deb s. The ob ious implica ion om his is ha in es men s should be ca e ully moni o ed o municipali ies o e ing complex se ices and main aining impo an le els o economic ac i i ies once a ce ain le el o deb s is su passed. In o he wo ds, o ind an analogy om he p i a e sec o , a kind o ’deb co enan ’ should be in oduced as a way o egula e he inancial managemen o local go e nmen s. This egula ion should only a ec hose municipali ies ha ing a le el o deb s beyond a de e mined poin . The esul s o he quan ile eg ession a e ex emely use ul o de e mine he uppe limi o he deb s o egula e he le el o municipal in es men s. 6. Concluding ema ks In Spanish public adminis a ion, all laye s o go e nmen —cen al, egional and local— con ibu e o public spending, and ha e a ying le els o powe s. Al hough municipali ies a e clea ly he le el o go e nmen wi h he ewes less powe s ( he second decen aliza ion, om he cen al and egional go e nmen s o local go e nmen s ac ually ne e ook place), hey a e allowed o bo h aise local axes and cha ge a i s o he se ices hey p o ide. These and o he e enues hey ob ain om di e en sou ces allow hem o, depending on he size o hei popula ions, p o ide se ices such as day-ca e nu se ies, public anspo , was e disposal, sewage, cons uc ion, managemen o spo s cen e s and public g een a eas, e c. The cu en economic and inancial c isis has se iously a ec ed (and is a ec ing) Eu o- pean public adminis a ions. In he Spanish case, all laye s a e hea ily a ec ed. Howe e , he e a e many di e ences, since ou o 17 egions (“comunidades au ónomas”) some o hem a e acing much highe de ici s han o he s, especially hose whe e he housing bubble was la ges —and, he e o e, when i bu s he e ec s we e mo e de as a ing. In hose egions, he amoun o e enues aised by egional go e nmen s has plumme ed, whe eas ha o cos s has ei he emained cons an o e en isen. S epping down o he local go e nmen le el, one inds a simila scena io, wi h he added p oblem ha he numbe o municipali ies is much highe (8,112 municipali ies s. 17 egions) and, he e o e, he le els o he e ogenei y a e also much highe , wi h many municipali ies acing ex emely s ingen inancial needs, o which he esponses ha e di e ed ema kably. 16 Unde hese ci cums ances, his pape has analyzed he main de e minan s o local go - e nmen deb in Spain. This ques ion has been pa ly app oached in p e ious con ibu ions, which ound ele an esul s. Howe e , he p e ious li e a u e implici ly assumed ha he impac o he di e en a iables was homogeneous ac oss he 8,112 municipali ies, dis ega ding he possibili y ha e ec s could a y o di e en quan iles o he dis ibu ion o municipal deb . In o he wo ds, mos o he sub le ies ha migh exis we e hidden by he ac ha esul s we e summa ized in o an a e age e ec . We conside ha his migh be an o e -simpli ica ion, since based only on his summa y, economic policy ecommenda ions would no be uned o ma ch he in insic cha ac e is ics o each municipali y. Ou esul s indica e ha o mos o he a iables conside ed o ha e an impac on mu- nicipali ies’ deb , which we e in line wi h hose used by p e ious li e a u e, he e ec s a y conside ably depending on he quan ile o he condi ional dis ibu ion o local go e nmen deb . This implies ha he explana ions one migh ha e p e iously ound (explana ions ha did no ake in o accoun hese di e ing e ec s by quan ile) should s a e ha he impac s ound co esponded o a e age impac s. Acco ding o he analysis pe o med in his s udy, whe e we conside ed h ee ypes o a iables, namely, inancial, socioeconomic, and poli ical, he e ec s a e s ong, and signi ican , o mos o hem. In e es ingly, he e ec s di e g ea ly depending on how indeb ed municipali ies a e, and in some cases he impac s we e e en opposi e o he lowe and uppe ails o he municipali ies’ deb dis ibu ion—such as, o ins ance, he a iable e lec ing de olu ion. In o he cases, he e ec s we e no signi ican o some pa s o he dis ibu ion, bu o o he s hese e ec s we e posi i e and signi ican , and his happened in a non-negligible, and ele an , numbe o ins ances. This is he case o , o ins ance, capi al expendi u es, non- inancial su plus (as a sha e o de ici ), own iscal capaci y, o ou ism. These esul s indica e ha he design o public policies ha a emp o con ol local go - e nmen s’ cos s, s ongly encou aged by Eu opean Union ins i u ions, and con empla ed by he ecen upda e o he S abili y and G ow h Pac (2011), should ake in o accoun his a ying eali y, which is e y p esen in he case o Spanish local go e nmen s. 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Public Adminis a ion, 91:51–68. 20 Table 1: De ini ion o he ele an a iables Type o a iable Va iable name Desc ip ion De ini ion/Calcula ion Expec ed sign Con ollable/non- con ollable (sho - e m basis) Dependen a iable DEBT/POP Deb le el pe inhabi an (To al deb )/popula ion Independen a iables Financial/ iscal INVEST Capi al expendi u es (capi al ans e s plus acquisi ions o capi al goods)/popula ion (+) Con ollable NETSAV Ne sa ings (a ailable unds o conduc in es - men s) (g oss sa ings – amo iza ion ex- penses)/popula ion (−)Con ollable/non- con ollable BUDGET Non- inancial de ici /non- inancial su plus (non- inancial budge expendi u es, headings 1 o 7 o NREa )/(non- inancial budge e enue, headings 1 o 7 o NRRb ) (+) Con ollable FISCCAP Own iscal capaci y ( e enues ep esen ed by municipali ies’ own esou ces) ( axa ion e enues (NRRbheadings 1 o 3))/(To al e enues) (+/−)Con ollable EXPCOMM Expendi u e commi men (pe sonnel and inancial expendi u es)/( o al expendi u es) (+) Con ollable Socioeconomic TOURISM Le el o ou ism Index based on he (local) ax on economic ac i i y (o Impues o de Ac i idades Económicas, IAEc ) wi h espec o ou ism-o ien ed ac i i- ies (+) Non-con ollable ACTIVITY Le el o economic ac i i y ((Local ax on economic ac i i y (IAEc ) co e- sponding o he municipali y’s economic ac- i i ies)/( o al IAEb e enues o all Spanish municipali ies))×100,000 (+) Non-con ollable DENSITY Popula ion densi y Inhabi an s pe km2(−)Non-con ollable Poli ical POLITICAL Colo o municipali y’s go e ning pa y Dummy a iable aking he alue o 1 o mu- nicipali ies go e ned by le -wing pa ies, 0 o he wise (+) Non-con ollable FORAL Fo al egions (Na a e and he Basque Coun- y) Dummy a iable aking he alue o 1 o mu- nicipali ies in he o al egions (−)Non-con ollable POWERS Decen aliza ion Dummy a iable aking he alue o 1 o mu- nicipali ies wi h less powe s (+/−)Non-con ollable aNRE: Ne Recognized Expendi u es. bNRR: Ne Recognized Re enues. cIAS:Impues o de Ac i idades Económicas (local ax on economic ac i i y). 21 Table 2: Desc ip i e s a is ics o he ele an a iables Type o a iable Va iable name # o obse a ions Mean S d. De . 1s qua ile Median 3 d qua ile Dependen a iable DEBT/POPa1,381 0.2851 0.2873 0.0686 0.2134 0.4151 Independen a iablesb Financial/ iscal INVESTa1,381 1.0355 0.1827 0.9336 1.0120 1.1090 NETSAVa1,381 87.8060 422.6137 –8.4856 51.7434 119.0209 BUDGET 1,381 1.0353 0.1827 0.9336 1.0118 1.1088 BUDGET 1,381 1.0355 0.1827 0.9336 1.0120 1.1090 FISCCAP 1,381 0.4357 0.1528 0.3212 0.4407 0.5425 EXPCOMM 1,381 0.6517 0.1268 0.5770 0.6635 0.7438 Socioeconomic TOURISMc1,381 52.8704 349.2460 0.0000 2.0000 10.0000 ACTIVITYc1,381 56.4461 361.9620 2.0000 7.0000 23.0000 DENSITYd1,381 0.0246 0.0355 0.0031 0.0119 0.0310 aIn logs; DEBT in housands o e. bAll he poli ical a iables used a e dicho omous a iables and he e o e hei alues a e no epo ed. cBo h TOURISM and ACTIVITY a e index numbe s cons uc ed by La Caixa Founda ion. See “Anua io Económico de España” (Spanish Economic Yea book) o de ails (h p://www.anua ieco.lacaixa.comunicacions.com). dIn squa e kilome e s pe inhabi an (i.e. in e se o he usual de ini ion o densi y). 22 Table 3: Reg ession quan iles, all a iables Co a ia es Dependen a iable: DEBT/POP Quan ile (τ) 0.05 0.10 0.25 0.50 0.75 0.90 0.95 (In e cep ) 0.146 (0.046)0.220 (0.066)0.123 (0.079)−0.189 (0.086) −1.012 (0.165) −1.027 (0.264) −1.243 (0.430) Fiscal/ inancial a iables INVEST −0.003 (0.002)−0.006 (0.005)−0.003 (0.006)0.025 (0.009)0.100 (0.010)0.126 (0.029)0.150 (0.045) NETSAV −0.104 (0.103)−0.495 (0.185)−1.016 (0.244)−2.037 (0.272)−1.981 (0.508)−2.961 (0.793)−3.159 (1.163) BUDGET 0.000 (0.006)0.013 (0.023)0.036 (0.035)0.118 (0.045)0.195 (0.065)0.205 (0.109)0.256 (0.183) FISCCAP −0.009 (0.007) −0.023 (0.017) −0.001 (0.028)0.158 (0.042)0.126 (0.074)0.157 (0.098)0.137 (0.170) EXPCOMM −0.011 (0.007)−0.025 (0.033)−0.081 (0.051)−0.116 (0.060)0.215 (0.111)0.164 (0.180)0.229 (0.290) Socioeconomic a iables TOURISM 0.001 (0.001)0.004 (0.003)0.003 (0.004)0.023 (0.006)0.032 (0.009)0.059 (0.013)0.069 (0.026) ACTIVITY 0.003 (0.002)0.012 (0.005)0.041 (0.007)0.049 (0.009)0.103 (0.016)0.088 (0.022)0.097 (0.036) DENSITY 0.000 (0.007)−0.017 (0.050)−0.046 (0.116)−0.091 (0.193)0.185 (0.233)0.136 (0.198)−0.142 (0.867) Poli ical a iables ELECTION 0.005 (0.003)0.014 (0.006)0.020 (0.007)0.031 (0.009)0.045 (0.017)0.033 (0.028)0.139 (0.048) FORAL −0.039 (0.016) −0.032 (0.036) −0.083 (0.012) −0.006 (0.076) −0.008 (0.037)0.161 (0.124)0.151 (0.503) POWERS −0.128 (0.045) −0.183 (0.048) −0.091 (0.034)0.018 (0.036)0.201 (0.071)0.259 (0.086)0.304 (0.161) 23 Figu e 1: Reg ession quan iles, inancial/ iscal a iables 0.0 0.2 0.4 0.6 0.8 1.0 0.00 0.05 0.10 0.15 0.20 (a) INVEST 0.0 0.2 0.4 0.6 0.8 1.0 −5 −4 −3 −2 −1 0 1 (b) NETSAV 0.0 0.2 0.4 0.6 0.8 1.0 0.0 0.2 0.4 0.6 0.8 1.0 (c) BUDGET 0.0 0.2 0.4 0.6 0.8 1.0 −0.2 0.0 0.2 0.4 0.6 (d) FISCCAP 0.0 0.2 0.4 0.6 0.8 1.0 −0.4 −0.2 0.0 0.2 0.4 0.6 0.8 (e) EXPCOMM No es: he slopes co esponding o he inancial/ iscal co a ia es o he es ima ed linea quan ile eg ession o model (2) a e plo ed as a unc ion o τ(i.e., he di e en quan iles), ep esen ed on he ho izon al axis. The e ical axis ep esen s he alues o he slope coe icien s o each quan ile (τ). 24