It is true that to a certain extent tax dumping is used as an element of political distraction, because in the issue of financing there are other singularities, including the regional agreement, and they don't appear in our country's political discourse. But this doesn't mean that the Community of Madrid under the neo-conservative Ms. Ayuso isn't doing so. Madrid is engaging in fiscal dumping, yes. Andalusia isn't. Nor is Murcia. If these communities lower their taxes and collect less, that's their problem, because they'll have less spending capacity and won't be able to claim the equalization transfers later. To each their own. In the case of these other communities, if they use their fiscal autonomy to lower taxes, with a loss of revenue if applicable, the reduction will be real.
On the other hand, Madrid is dumping because it knows that, as the capital of the state, it will never have to endure a deterioration of public services. Lowering taxes comes at no cost. Tax collection is guaranteed by the location of bases that being the capital city entails, both from companies and from withholdings from salaries and income of civil servants and other personal assets. It is not true that the autonomous community contributes as much to joint financing as Ayuso claims, since the bases that show its tax capacity are not "its own," but rather the result of the exaggerated centralism with which the State administration rewards the community. Let Spain follow Germany, which has its capital in Berlin and headquarters in Bonn, Frankfurt, or Hamburg, and we'll see what the effective capacity of the Community of Madrid is.
The debate stems from what is or is not fair financing. It should be assessed not in terms of nominal average resources between autonomous communities (receiving the same amount of financing does not make it "fair"), but by looking at the correspondence between the own resources that each community dedicates to contributing to the whole and what the State returns to them in real terms of purchasing power, given their price differential.
Dumping asymmetric of Madrid, insofar as it generates no fiscal costs, is not, as some claim, an intrinsic result of the tax autonomy that comes with all fiscal decentralization. Fiscal federalism is cooperative. On the other hand, fiscal competition is typical of tax wars between states, zero-sum games to try to harm each other. And if everyone does the same, they can all end up losing. As with tariffs.
It's curious that Spanish nationalism, which dislikes political decentralization, takes advantage of fiscal decentralization to endanger social cohesion and the efficient allocation of resources within the state, and to attack precisely an autonomous state in which they don't believe. Spanish nationalism protests in the harshest terms when it suffers dumping and sees the economic activity of the "great nation" attacked by the relocation of companies to countries like the Netherlands or Ireland, which it accuses of following a fiscal strategy that it itself hypocritically exercises within Spain.
In any case, economic activity and resources move according to the value of their productivity, and taxation is part of their cost, but it should be marginal and not decisive. At least it should be for those communities that, despite our current taxation, have good human capital, infrastructure, social capital, and sufficient talent. The communities most sensitive to tax pressure are those that have none of this and risk becoming a tax haven for something. This is the risky dream of many poor communities. Lowering rates to try to attract tax bases only works if the rest of the communities don't. But doing this doesn't create new global bases within the territory; rather, it parasitizes those of another community. And predictably, the poorest here bear the brunt, especially if they have nothing else to offer. Their failure to raise revenue, stemming from a lack of solidarity between territories, then becomes a lack of personal solidarity within their own community with respect to its most vulnerable population, an effect they attempt to mitigate with the ideological liberal option of having a minimal public sector; or, alternatively, they turn this public sector into a call to demand equalizing state transfers that guarantee their basic welfare state services.
