Bailouts in a fiscal federal system: Evidence from Spain

This paper investigates bailouts in the fiscal federal system of Spain. An equation is estimated in which central government grants to regions depend on the regions' issue of debt. The data is for the period 1986-2006. The results reveal partial bailouts. This holds for discretionary and in-principle non-discretionary grants. Bailouts are greater or more likely when there are limits on the borrowing autonomy of a region, when the region is responsible for providing health care; and when the region has a high proportion of swing voters).