Unconditional transfers to local governments in Spain are distributed mainly according to weighted population, with weights rising with population size to account for the higher expenditure responsibilities and needs of bigger municipalities. The authors evaluate the appropriateness of these...

The aim of this paper is to analyze whether Spanish municipalities adjust in response to budget shocks and (if so) which elements of the budget they are more likely to adjust. The methodology we use to answer these questions is a vector error-correction model (VECM), estimated with data from a...