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Overview
The Revenue System of Catalonia is the set of means for which the regional government is empowered to finance its activities. It is regulated by the Spanish Constitution, the Catalan Statute of Autonomy and the LOFCA (Autonomous Communities (ACs) Organic Law of Financing by its acronym in Spanish) as established in the third section of article 157 of the Constitution.

The principles guiding the system are (1) financial autonomy, that is, the Generalitat (Institutional system of Catalonia) has legal capacity to regulate, to collect taxes and to manage them; (2) coordination, solidarity and transparency between regional and central administration in terms of taxing and finance; (3) resource sufficiency –the central government is committed to provide the necessary resources to the regions-; (4) institutional loyalty, fiscal responsibility and equity between administration bodies. Furthermore, the ACs’ Revenue System cannot discriminate against other regions

Revenue categories
The means of the Catalan government to fund its activities fall into three broad categories: income from taxation; transfers from the Guarantee Fund of essential public services; and the Adjustment Funds. Before developing them, it is worth mentioning that there are three levels of tax collection in Spain, i.e. the local, the regional and the state. However, this does not necessarily mean that the income collected goes to funding the activities for which they are accountable. Hence, the income tax and the VAT are state-level taxes but an important share of them goes to the regional treasuries as it will be shown later. Thus, there are several variables to consider in the understanding of the regional revenue system which can be explained by answering to these questions: which level of government the tax belongs to –local, region, state-; which one is responsible to collect the tax; which one is responsible for managing it and last, which treasury is the income beneficiary.

The income from taxation is the main source of revenue, specifically the State-levied taxes transferred to the regional government. Under this category, two groups can be distinguished: those that are partially transferred to the region –i.e. VAT, Income Tax and special taxes on some manufactured goods- and those that are totally transferred to the region, such as some of the Sin Taxes, inheritance tax and others. The former consists of a share of the tax collection transferred to the Generalitat. In a nutshell, the Catalan government acquires 50% of the VAT and Income Tax revenue and 58% of the Special Taxes (related to alcohol, tobacco and hydrocarbons). The latter can further be divided in two subcategories: taxes levied and managed by the regional government and taxes levied by the Spanish central government and transferred to the region. In both cases, the totality of the revenue goes to the regional treasury. A second group of taxes - minor in terms of income - are the taxes, rates and contributions designed and levied by the regional government. These don’t have a transnational character although all regions have the faculty to levy them The above-mentioned taxes are attributed to each AC considering the fiscal address of the taxpayer (for personal taxes) or the location of the property (for the tax on property). The VAT share is assigned through a set of components, chiefly “the place of consumption or statistically calculated consumer indicators”. ACs normative faculty for transferred taxes is comprehensive. In general, they are entitled to reduce the tax base and the tax burden, fix exemptions and apply discounts and quotas although in many instances the state imposes restrictions that narrow down the autonomy potential

The Guarantee Fund of essential public services is an adjustment mechanism to ensure all ACs receive the same resources per inhabitant to finance the basic public services. The main component for its calculation is the adjusted population of each AC

The Adjustment Funds can be divided in two sub-sections, the Global sufficiency Fund, intended to maintain the status quo of each AC –partly after the 2009 modifications-, and the Convergence funds which in turn are constituted by the Competitivity Fund and the Cooperation Fund. The former is an adjustment mechanism for those ACs which revenue per capita is inferior to the average or to its index of financial capacity. The latter was created to guarantee equality and achieve cohesion among ACs. The recipients of this fund are those ACs which either have a GDP per capita below 90% of the national average or a population density below 50% of the national average.

There are other sources of revenue for the region which account for a smaller percentage of the total income:
 * Surcharges of state-levied taxes.
 * The so-called Inter-territorial Compensation Fund, a mechanism to adjust the revenue in the regions depending on a group of factors.
 * Other transfers (such as EU transfers, financial operations –debt issues-, private law income and fines and sanctions).

Government Revenue Budgets
Due to the legislation changes on 2009, which substantially affected the Revenue System from 2011 upwards, data analyses require caution. In addition to that, the economic situation since 2008 has forced all levels of government to review the income configuration and eventually reduce exemptions or even create new taxes. Nonetheless, it can be asserted that the main source of revenue comes from the transferred national taxes, mainly the corresponding share of the income tax and the VAT (see table 2). The trend since the establishment of democracy has clearly been towards increased revenue for the Catalan treasury –and for those ACs regulated by the LOFCA - as it can be observed in table 1. Another conclusion that can be drawn is that the crisis has considerably affected the income of the Generalitat in regards to non-financial revenues. As a counter-measure, the financial income has risen sharply along with the debt, which almost doubled between 2009 and 2011, reaching a 20.7% of the Catalan GDP. This is particularly remarkable if one takes into account the average between 2000 and 2008, only 8.05%.

Table 1: Regional Government Revenue Budget - Overview
Million € Source: Generalitat de Catalunya, Departament d'Economia i Coneixement. Economia del Sector Públic. Retrieved from (in Catalan) http://www20.gencat.cat/portal/site/economia/menuitem.6135b456613b7f9af813ae92b0c0e1a0/?vgnextoid=b1a742c9f0f79210VgnVCM1000008d0c1e0aRCRD&vgnextchannel=b1a742c9f0f79210VgnVCM1000008d0c1e0aRCRD&vgnextfmt=default

1 See detail in table 2 for years 2009-12.

2 the Generalitat only acts as the paying bank. This entry concerns the local level of taxation.

Controversies of the Revenue System
The revenue of the ACs is directly linked to the devolved powers from the central to the regional government, that is, the set of issues for which the regional governments are responsible, both from a managerial and a financial standpoint. Therefore the revenue system itself does not show the whole picture as it would occur with a sovereign state. One has to look at the revenue side of the regional government and examine the expenditure necessities given a certain competence level. In plain words, what fields is the region responsible for and how much money is available to provide such services. It is beyond the scope of this article to discuss the competences and their relationship with the revenue; nevertheless it is worth mentioning the controversies arising from this topic in the political - and more recently- in the public sphere. Since late 2012 the claims for a fully-sovereign Catalan state from a considerable part of the Catalan people and some political parties have gained momentum and the economic arguments are indeed one of the most discussed and contested issues. This is mostly due to fiscal flows imbalances between regions or what is commonly known as the Catalan fiscal deficit which is, in short, the argument stating that the region contributes in excess to the other Spanish regions economies’, making Catalonia comparatively worst off. This, in turn, is related to the vague concept of ‘solidarity’ in which observers deliberate on its concept, boundaries and economic consequences for both the net contributors and the net recipients. A similarly controversial issue is the comparison with other decentralized countries and their approach to the concept of ‘solidarity’. According to Bosch (2005) if Spain used the leveling mechanisms of Canada, Catalonia would not lose financial capacity whatsoever. If the German one was applied, the Catalan region would lose a considerable share of its financial resources but still would keep its position in a wealth ranking of regions as recognized by the German Constitution. The Spanish system does not cover this topic allowing regions to rank higher in GDP terms than in disposable income terms.