Politics and Finance in Spanish Municipalities

This paper undertakes an analysis of the Spanish local governments from the perspective of public choice theory. A set of hypotheses from a theoretical analysis is examined including alternative modes of public management, the possible use of financing instruments that generate fiscal illusion and the influence of certain pressure groups on the size of the municipal budget. We work with a sample of 140 Spanish municipalities with more than 50,000 inhabitants for the period 2002-2010. Our results support an (expansive) impact of the construction sector and the fiscal illusion hypothesis. Most controversially, our evaluation of the management modes seems to indicate that the indirect modes of public management adopted by local councils do represent attempts to escape from the rigid corsets that administrative legislation set out.