Adjusting to Austerity. Economic Crisis, Budgetary Stability and Territorial Financing in Spain and Italy (2010-2015)

This paper studies the adjustment of regional governments to the fiscal constraints imposed by central governments in the immediate aftermath of the Great Recession (2007-10) and provides an assessment of patterns of convergence/divergence across regions in Italy and Spain. Existing research has examined how federal governments have responded to the crisis with a Keynesian stimulus, followed by a policy of fiscal austerity (Hubscher 2015; Armingeon et al. 2015) and how these responses were shaped by and, in turn, affected inter-governmental relations (Kincaid, Tarr and Walti 2010). This paper focuses instead on how the introduction of austerity measures affected territorial financing in Spain and Italy between 2010 and 2015. Specifically, it aims to study two aspects of territorial financing: (i) the different modalities of control through which budgetary stability were imposed by central governments on central governments (reduction of direct earmarked grants; restriction of access to credit markets; conditional access to loans; rules on targets accompanied by monitoring and sanctions); and (ii) the effects of these measures of control on changes to the revenue composition of regional government’s budgets. Finally, an analysis of cross-regional variation in financing and spending before and after the Great Recession is provided.