Urban Accounting and Welfare in Spain

In this paper we use data on Spanish cities between 2006 and 2015 to study the Spanish urban system applying the model in Desmet and Rossi-Hansberg (2013). We decompose the determinants of the Spanish city size distribution into three main components: efficiency, amenities, and frictions. In the model, higher efficiency and better amenities lead to larger cities but also to greater frictions through congestion and other negative effects of agglomeration. We find that eliminating variation in any of these three components leads to large population reallocations, but modest welfare effects. However, some individual cities benefit and others experience large changes as a result of these policy experiments. The largest effects are seen in terms of equating the excessive frictions - a measure of poor governance- across all cities