Chapter 2

2.4 - Soft budget constraints in Spanish
health care decentralization
Puig-Junoy J. 1 , Prats A. T. 1
Spain is divided into seventeen Regions, called Autonomous Communities (henceforth
ACs or Regions) with regional governments that were created following the guidelines
established in the democratic constitution ratified in 1978. There are two completely different
systems of decentralization, the “foral” regime, instituted only for the Basque
Country and Navarre, and the common regime, for the other fifteen Regions. The primary
difference between the two systems is that Regions under the “foral” regime have authority
to raise taxes locally, whereas Regions under the common regime do not have significant
tax-raising authority (a recent reform, approved in July 2001 and effective as of
2002, devolves some tax-raising autonomy to the Regions under the common regime).
The two types of Regions have similar spending responsibilities.
The common regime has been characterized by having a fair amount of expenditure
responsibility, but little revenue autonomy, although revisions of the system tend to give
more revenue autonomy. Until recently, mainly government transfers have financed the
Regions under this regime. They can impose some taxes and duties, which represent a
small percentage of revenues. They also receive ceded taxes. Ceded taxes initially included
wealth tax, inheritance tax, a tax on wealth transfers, and taxes on gambling. The
reforms of 1997, and especially the reform of 2001, expanded the ceded taxes to 33% of
income tax, some special taxes and 40% of value added tax, but the latter without normative
power. This last reform integrates the financing of health into the general system.
The major change in recent years with respect to financial responsibilities across different
levels of government has come from the devolution of health services management to the
regional governments. This devolution process started in 1981 and was completed in
2002. Until 2002, the National Institute of Health (INSALUD) managed social security
health services for the 10 autonomous communities with low responsibilities within the
common regime.
In the last two decades, the Spanish health care system has undergone a radical change
in its sources of funding, from a typical social security model of financing, based on
salary contributions, to an NHS model, based on general taxation. The 1989 Public
Budget Law established that general taxation revenues should progressively provide
funds for health services. The share of health service funds provided by general taxation
increased from 69% in 1993 to 83% in 1996 and 100% in 1999.
The funds are distributed to the decentralized ACs according to a capitative criterion.
Initially, the amount of funding specifically transferred was supposed to cover the actual
1 Universitat Pompeu Fabra (UPF), Department of Economics and Business, Research Centre for Economics and Health
(CRES).
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CEIS Health Report 2006