The role of intergovernmental finance in achieving diversity and cohesion:the case of Spain

The democratic Constitution of 1978 established a decentralised state in Sp ain. Since that year, the Autonomous Communities (the intermediate level of government) have strongly increased their role and currently represent aro und 25% - 30% of total public expenditure. Therefore, financing autonomous government has become a crucial issue with important financial and politica l consequences. The present system is based mostly on grants from central g overnment, while tax revenues and fiscal accountability are weak. The finan cing system can play an important, albeit complementary, role in ensuring c ohesion within a decentralised state. On the one hand, it can achieve a cer tain level of equalisation in providing public services all over the territ ory. On the other hand, it can allow all regions to obtain an appropriate l evel of self-government. However, it is important to stress that territoria l cohesion requires as a precondition, a political consensus and the accept ance of a common project among the different regions. Financial problems ca n certainly become political problems, but political problems can rarely be solved through financial measures alone. Therefore, we should not demand o f intergovernmental finances what they cannot do.