On the econometric estimates of regional spending needs: are they robust enough?

Abstract

The aim of this paper is to identify and quantify econometrically the determinants of the spending needs of the Autonomous Communities. The combination of individual fixed effects that capture unobservable inter-territorial differences in spending preferences or efficiency, on the one hand, with expenditure determinants of low variability, on the other poses problems for traditional estimators. To overcome this limitation, alternative econometric specifications and estimators are explored. The results show that the estimated coefficients and their significance change substantially, not being able to guarantee the necessary robustness to sustain an adequate political discussion. Therefore, it is necessary to bet on other strategies for empirical work that allow us to the spending preferences of the Autonomous Communities.