This paper proposes an empirical framework that distinguishes voluntary from involuntary compliance
with fiscal deficit targets on the basis of economic, institutional, and political factors. The framework is
applied to Spain’s Autonomous Communities (regions) over the period 2002-2015. Fiscal noncompliance
among Spain’s regions has shown to be persistent. It increases with the size of growth
forecast errors and the extent to which fiscal targets are tightened, factors not fully under the control
of regional governments. Non-compliance also tends to increase during election years, when vertical
fiscal imbalances accentuate, and market financing costs subside. Strong fiscal rules have not shown
any significant impact in containing fiscal non-compliance. Reducing fiscal non-compliance in multilevel
governance systems such as the one in Spain requires a comprehensive assessment of
intergovernmental fiscal arrangements that looks beyond rules-based frameworks by ensuring
enforcement procedures are politically credible.
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