Enabling regions to set their own taxes rates

Constituent units in countries with federal arrangements such as Spain will soon be able to set their own tax rates, while federal countries such as Germany and Belgium have decided not to give this power to their subnational units, often called states, provinces or autonomous communities.

To examine why this is so, and analyze the advantages of different regional taxation schemes, the Forum and the Institute of Comparative Public Law of the Carlos III University of Madrid, held a one-day seminar in Madrid on Feb. 25, 2010, with the support of the Gimenez Abad Foundation of Zaragoza.

The seminar also examined how the power to set tax rates has been used in Canada, Switzerland and the United States. The experiences of the countries where this practice prevails were contrasted with the new model of financing of Spain’s 17 regional governments, called autonomous communities

The new model of financing for Spain’s 17 regions was adopted in December 2009 and came into force in January 2010. The most notable element of this system is the substantial increase in taxation powers that have been accorded to the regional governments. Another important element is the creation of new transfer systems that aim to equalize income between the regions and guarantee the provision of essential public services, the cost of which has increased considerably.

Starting in 2011, the central Government will not collect certain taxes and therefore not distribute the so-called "ceded” part of these taxes to the autonomous communities. This means that autonomous communities that fail to pass their own legislation to impose those taxes might very well lose the tax revenues they have become accustomed to receiving.

The reassignment of taxation powers resulting from the shared taxation mechanisms constitutes the most important tax reform in Spain since the Constitution of 1978 declared Spain a "State of Autonomies,” in other words, a nation made up of autonomous communities.

Given the complexity of the new financing model, the Spanish and international experts engaged in lively debates about the formula’s advantages and disadvantages compared with the previous models.
The case studies presented during the seminar will be compiled and published later by the Forum of Federations.

The Forum of Federations experts who participated in the seminar are the following:

  • Prof. Francois Vaillancourt, University of Montreal, Canada
  • Prof. Dr. Fabrizio Gilardi, Associate Professor of Public Policy, Department of Political Science and Center for Comparative and International Studies, University of Zurich, Switzerland
  • Prof. Charlie Jeffery, University of Edinburgh, United Kingdom
  • Prof. Erik Fasten, Humboldt University, Berlin, Germany
  • Prof. Magali Verdonck, Saint-Louis University, Brussels, Belgium

The Spanish experts were the following:

  • Prof. Violeta Ruiz Almendral, Universidad Carlos III de Madrid, Spain
  • Prof. Alfonso Utrilla de la Hoz, Complutense University of Madrid, Spain
  • Prof. Santiago Díaz de Sarralde, Chief of Technical Cabinet of the General Secretariat of Territorial Financing, Ministry of Economy and Finance, Madrid, Spain
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