This paper quantifies the relative importance of spending requirements and fiscal capacity as explanatory factors of the inequality observed in the levels of local public spending per inhabitant using data from the municipal districts of the province of Barcelona with more than 5,000 inhabitants for 1996. The methodology employed consists in estimating the demand equations for seven categories of spending. The spending requirements ara introduced into the model on the basis of a detailed specification of the relation between the activity and the results of the services, in which different groups of users and cost variables are included. In addition to the classical determinants of spending price, income and subsidies, we also introduce an index of fiscal capacity, political and institucional factors and the effects of the activities carried out by neighbouring local authorities as control variables. The results demonstrate that the spending requirements explain a significant percentage of the variation in spending per inhabitant (44%), greater than the percentage explained by fiscal capacity (38%), by political and institucional factor (9%) or by the interdependencies between neighbouring local authorities (9%). The results further highlight the importance of different requirements variables over and above the population, for example: the dispersion of the population, poverty levels, daily visitors, the seasonal population, employment in the retail sectas, etc.

Key words: local public spending, spending requirements, fiscal capacity, levelling subsidies.
JEL classification: H11, H72, H77.