Monday, July 4

The adjusted population formula benefits Extremadura and Aragon and harms the Canary Islands and Galicia

  • Valencia, Catalonia, Madrid and Andalusia are the other communities harmed by the proposal for the reform of autonomous financing

  • The Fedea Foundation publishes a first analysis on the formula proposed by the Ministry of Finance

The executive director of the Foundation for Applied Economics Studies (Fedea), Ángel de la Fuente, has prepared an analysis of the regional financing proposal presented last week by the Ministry of Finance, with the adjusted population formula, and has concluded that the communities that benefit the most from the current model will be Extremadura and Aragon, and the most affected Canary Islands and Galicia.

Although Fedea has valued positively that the Ministry of Finance has maintained in its proposal the “nucleus” of the measures defended by the Committee of Experts of 2017, it has criticized the use in the adjusted population formula “of ‘ad-hoc’ variables that they introduce elements of arbitrariness in the calculation of the spending needs of the autonomous communities “.

According to Fedea’s calculations, the Treasury proposal would “very appreciably” increase the spending needs attributed to Estremadura (+ 8.6%) and Aragon (+ 7%) and would reduce the Canary Islands (-3%) and Galicia (-2.7%). In addition to these two communities, the other regions that would see their spending needs reduced with the new formula would be Valencian Community (-1,7%), Catalonia (-1,58%), Madrid (-1.05%) and Andalusia (-0,54%).

On the other hand, with the new calculation proposed by the Treasury, together with Extremadura and Aragón, the other regions that obtain an increase in their spending needs are The Rioja (+5,41%), Cantabria (+4,51%), Murcia (+3,28%), Castilla la Mancha (+3,14%), Asturias (+2,72%), Castile and Leon (+ 2.54%) and Baleares (+2%).

Financing system

Fedea explains that the adjusted population variable is an indicator of spending needs that reweighs regional populations according to an estimate of the relative costs per inhabitant of producing the standard basket of services provided by the autonomous communities in each territory. If the cost formula is correct, a distribution of the system’s resources in proportion to the adjusted population would ensure that all communities can offer similar benefits to their citizens, although these have higher costs in some territories than in others.

Thus, Fedea specifies that the effective distribution of the resources of the financing system, but rather an ideal distribution formula based on the estimated costs of providing a homogeneous basket of services and benefits throughout the country.

However, he assures that this “ideal distribution” has very significant effects on the real distribution of financing through the redistributive mechanisms of the financing system because some of the most important funds of the same are distributed taking into account the adjusted population.

For this reason, Fedea’s analysis, prepared by its director, Ángel de la Fuente, summarizes the recommendations of the Ministry of Finance on the variables to be used in the adjusted population formula and compares them with the model still in force and with the committee’s proposals. experts 2017.

Thus, the Treasury has taken on the bulk of the expert committee’s proposals regarding the introduction of a fixed cost item and an indicator of poverty or exclusion; the doubling of the educational needs variable to incorporate an indicator of university spending needs; the introduction of weightings by age group in the population over 65 years of age and the updating of the indicator of health expenditure needs.

‘Ad hoc’ and ‘tailored suits’ settings

On the other hand, De la Fuente assures that the “most debatable part” of the Treasury’s proposal has to do with the introduction of “two ‘ad hoc’ adjustments” that mean falling back into one of the “most persistent vices” of the system financing: the tendency to try to do “dresses made to order” instead of looking for “sensible” rules of thumb.

Specifically, it states that it is the “peculiar distribution” by blocks of the fixed cost item that is proposed based on a “confusing and unnecessary” exercise of cluster analysis and the introduction “with shoehorn of a new depopulation indicator selective designed expressly to give priority to certain communities “.

In this way, Fedea’s analysis shows that the Treasury’s proposal would entail “significant changes” in relation to the model still in force in terms of the spending needs recognized in some communities.

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“Some of them would be difficult to justify based on the existing evidence on the determinants of the costs of regional services,” de la Fuente complains.

Specifically and in relation to the current system, it points out that Aragón and Extremadura would increase their spending needs by more than 7 percentage points, thanks mainly to “ad hoc corrections” for fixed costs by segment and depopulation, while the Canary Islands and Galicia they would lose almost three points due to a combination of factors.

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