The Effects of Interpersonal Fiscal Redistribution on Provincial Growth and Convergence in Spain

This paper analyzes the effects of interpersonal fiscal redistribution on provincial growth and convergence in Spain over 2000-2010. After reviewing the literature and stressing the ambiguity of its conclusions, the paper offers an overview of the main characteristics of the interpersonal fiscal flows distribution. Next, it specifies a convergence model in which interpersonal fiscal flows are used as a key independent variable. Before further proceeding, the paper applies a filtering technique to remove spatial autocorrelation from raw data and, then, it estimates the model by GMM. The main conclusion is that interpersonal fiscal flows are an important policy instrument to promote both growth and, above all, convergence across Spanish provinces. Therefore, it seems that the typical trade-off between efficiency and equity does not hold in this case.