Executive Summary

The third edition of the Index of Economic Freedom in Spain (ILE in Spanish) consolidates a project that began five years ago, whose objective is to analyse the intervention of the State in the economy of the seventeen Spanish Autonomous Communities. For this purpose, twelve indicators are used, referring both to regional public expenses and revenues and to the regulation of economic activity carried out by the Autonomous Communities within the framework of their competences.

The indicators of the 2013 Index, especially those referring to public sector expenditures and revenues, reflect the effects of the economic crisis. The most important change, compared to the previous edition of this work (2011), is the one registered by the public debt indicator. The public debt/GDP ratio has grown in all the Autonomous Communities; but it is also important to note that it has done so very differently across regions. The Community of Madrid is the one with the lowest increase (1.8 percent of GDP), which makes it the region with the lowest percentage of debt. At the opposite end are Catalonia and Valencia. The first sees its debt grow by 8.4 percent of GDP; and the second by 6.7 percent. And, in both cases, the debt-to-GDP ratio is two and a half times that of Madrid.

Regarding spending, the regional public spending/GDP ratio has increased in almost all regions, indicating that these have not only reduced their spending by the same proportion as their income, but also that they have absorbed a higher percentage of the income they have generated. Along the same lines, the percentage of employees in the public sector over the total number of employed persons also grows slightly in almost all the Communities. The reason is not a surge in public employment, but the increase of the unemployment rate in the private sector. And the conclusion is, therefore, that the public sector has adjusted to the crisis situation to a lesser extent than the private sector, despite the budget deficits of the Autonomous Communities.

The ranking records some significant variations with respect to the previous edition of the Index. The Community of Madrid continues at the top of the table. La Rioja, which occupied third place, moves up to the second place. Murcia and the Canary Islands improve substantially, moving to fourth and third place, respectively. Navarra, on the other hand, experiences a striking decline, moving from second to eighth position. At the opposite end of the table, Andalusia and Extremadura continue to occupy the last places.

One of the main conclusions of this index is the existence of a positive correlation between economic freedom and the economic prosperity of the Autonomous Communities. This result is consistent with that of the international literature, which insists that not only the data confirms this correlation in a sustained manner, but also that the dependent variable in it is the level of prosperity, which is significantly conditioned for economic freedom, although this is not, of course, the only cause of wealth.

In the chapter entitled Economic policy and governments: are the differences between parties relevant? there is a review of the debated question of the correlation between the ideologies of the parties and the economic policies that they apply when they are in government. After analysing the two basic models, which propose alternative theories regarding the relevance —or lack of relevance— of the ideologies of the parties in power when designing their economic policy, the economic freedom data in Spain are used to look for a possible cause-effect relationship between the political parties that have governed the Autonomous Communities and their position in the index. The data shows that the Communities that have been governed for a period of at least ten years by the People’s Party occupy higher positions in the index than those that have been governed —also for more than ten years— by the Socialist Party. This result indicates that —at least in sufficiently long periods of time— regional policies are significantly influenced by the ideology of the ruling party.

The economic policy of the Autonomous Communities in the short and medium term, which are analysed in this work, is undoubtedly a very important factor in explaining the position of each of them in the index; But it is not the only cause. It should be remembered that the figures of some of the indicators used —that of health or education, for example— are also determined by the evolution of these sectors in much longer periods of time. And, regarding the effects of changes in position in the index, it should be noted that these do not have immediate effects on the level of income of the Autonomous Communities. What the results presented in this work show is that, if the other factors remain stable, a higher level of economic freedom tends to raise the level of income in the medium and long term; and that the setbacks in this field produce the opposite effect.

When comparing, with statistical data, the effects of the different strategies of the Autonomous Communities in very diverse fields, this Index can be used as a source of ideas for the elaboration of regional economic policies in Spain; and it can also become an effective instrument for entrepreneurs and investors who plan to carry out economic activities in the various Communities. Based on firm and proven data, its results are not subject to possible subsequent statistical rectifications.

The figures and conclusions of this work will be published on Civismo’s website (www.civismo.org), which will contribute to its use as a relevant document in the debate on economic freedom in Spain.