Catalan independence The economic issues. Elisenda Paluzie

Transcription

1 Catalan independence The economic issues Elisenda Paluzie

2 Outline 1. The economic context: globalization and the creation of new countries 2. The benefits of independence: the fiscal dividend 3. The costs of independence: commercial boycott 4. The current situation 5. Final remarks

3 1.The economic context: Globalization and the creation of new countries

4 1.The economic context: Globalization and the creation of new countries Countries are the result of a trade-off between two opposed forces: Centripetal forces favorable to large countries (scale economies in the provision of public goods, market size advantages in the production of private goods) Centrifugal forces favorable to small countries (heterogeneity costs: diverse preferences for public policies in a larger population)

5 1.The economic context: Globalization and the creation of new countries In a context of protectionism, centripetal forces are stronger (need to benefit from the national market). Trade liberalization: centripetal forces loose importance. Firms can sell to the world market, no need to belong to a larger country. The Catalan case: In the second half of the XIXth century Catalonia became Spain s factory in a context of domestic market integration. Scale economies and the reduction in transport costs (railway) consolidated Catalonia s initial advantage. Since 1986 integration to the EU market, as well as world trade liberalization, have reduced the importance of the Spanish market for Catalonia. Centripetal forces have weakened

6 Weakening of centripetal forces: The internationalization of Catalan economy-destination of Catalan exports (in %) 70,0 60,0 50,0 40,0 30,0 63,6 61,4 59,1 57,3 59,8 56,9 55,4 53,9 53,7 54,4 52,9 52,0 51,6 50,0 46,1 46,3 45,6 47,1 48,0 48,4 50,0 36,4 38,6 40,9 42,7 40,2 43,1 44,6 51,8 53,8 56,8 59,7 60,5 60,5 48,2 46,2 43,2 40,3 39,5 39,5 20,0 10,0 0, Resto Estado Español Resto del mundo

7 The internationalization of Catalan economy- Sales of goods of Catalan firms, % % % Cataluña Resto Estado Español UE y Resto del Mundo

8 Reinforcement of centrifugal forces The distance of the median voter in Catalonia from the central government policies has increased Constitutional Court decision on the Statute of Autonomy 2010 Catalan language conflicts Competences conflicts Fiscal relationship perceived as unjust Scarcity of investment in infrastructures

9 2. The benefits of independence: The fiscal dividend Catalan fiscal balance (difference between taxes collected in Catalonia and spending received) is highly deficitary Causes: Autonomic financing model (LOFCA): equalization formula, needsassessment based. Highly centralized fiscal structure. More than 90% of the taxes collected by the central government. Over-equalization. Spending patterns of the central government, particularly in infrastructures

10 The fiscal dividend - Catalan fiscal balance Monetary flow Benefit approach Catalan Government estimates ( ) FEDEA (2014) 16 B (8% Cat GDP) 10 B (5% Cat GDP) 9.9 B (5 % Cat GDP) Catalonia contributed to 19.5% of the revenues of the Central Administration and the Social Security. and received 14% of the Central Administration and Social Security expenditures. (Catalan population is 16% of Spanish population; Catalan GDP is 18,9% of Spanish GDP) Excluding Social Security payments (interpersonal redistribution: social contributions; pensions, and unemployment benefits): Catalonia contributed to 19.7% of the Central Administration revenues and received 11.1% of the Central Administration expenditures This means that the return of each euro paid in taxes to the central government is 56 cents. Of each euro paid 44 cents are not spent in Catalonia.

11 Expenditure on infrastructures Central government investment in Catalonia (% over Spanish total) ,00% 16,00% 14,00% 12,00% 10,00% 8,00% 6,00% 4,00% 2,00% 0,00%

12 Regional financial model: regional fiscal capacity before and after equalization, 2015 Before equalization After equalization /cápita Índice /capita Índice 1.Madrid 3, Cantabria 3, Balearic Islands 2, La Rioja 2, Catalonia 2, Extremadura 2, Aragon 2, Aragon 2, Cantabria 2, Castile-León 2, Asturias 2, Asturias 2, La Rioja 2, Galicia 2, Castile-Leon 2, Castile-La Mancha 2, Valencia 2, Balearic Islands 2, Galicia 1, Catalonia 2, Castile-La Mancha 1, Madrid 2, Murcia 1, Andalusia 2, Andalusia 1, Murcia 2, Extremadura 1, Valencia 2, Canary Islands Canary Islands 2, Average 2, Average 2,

13 3. The costs of independence: The commercial boycott Antràs and Ventura (2012) Excluding multinationals from boycott (40% Catalan exports), Catastrophic scenario: - 50% final goods (1/3 sales to the rest of Spain) - 20% intermediary goods (2/3 sales to the rest of Spain) => -18% sales => -1,3% Catalan GDP

14 4. The current situation October, 1 st Referendum October, 6th Decree facilitating change in legal headquarters (no need of shareholders approval) October, 27 th Declaration of independence/direct Rule November 2 nd Catalan government in jail In 2 months 2,700 firms moved their legal headquarters Total number of firms with legal headquarters in Catalonia: 265,758 (+ establishments (facilities) in Catalonia: 291,372 Sectors mainly concerned: financial, utilities, food consumer products. No foreign firms. Reasons: - Banks (ECB, uncertainty, deposit s boycott in the rest of Spain) - Regulated firms and public procurement - Commercial boycott Real effects: No effect in Catalan GDP, no effect in Catalan gov. taxes

15 4. The current situation Catalonia s annual growth rate: % ,5% ,5% (average Eurozone 1,8% ) 2017 P 3%

16 5. Final remarks In an internationalized economy, the creation of a new state, from an economic point of view, would not pose particular problems. In the context of the EU, more similar to the creation of a new state inside the US (i.e. Maine) than to a secession from the US. There could be transition solutions for the contribution of Catalonia to less developed Spanish regions (i.e. Varoufakis proposal) But political, judiciary, legal and economic reprisals to prevent it can have economic damaging consequences both for Catalonia and Spain.

17 John M. Keynes, Barcelona ub.edu/school-economics Thanks for your attention!