Fiscal Impact of Secession on Spain and Catalonia

Definitions

Secession – The action of withdrawing formally from membership of a federation or body, especially a political state.

Sovereign Debt – The amount of money that a country’s government has borrowed, typically issued as bonds denominated in a reserve currency.

Introduction

This entry provides an analysis of the potential fiscal impacts of a Catalonian secession from Spain. Through a review of the economic fundamentals of the Spanish economy and economic policies, the Spanish economy would be negatively impacted by the secession of Catalonia. In the long run, the Spanish economy displays enough resilience to recover from this shock and would remain an investment grade sovereign. However, the case of a sovereign Catalonia is different. Secession from Spain would require this young sovereign to address severe fiscal challenges from its inception, which makes the secession of Catalonia from Spain a very costly and highly unlikely event. This entry explores the challenges posed by...