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Scenarios of Macro-economic Development for Catalonia in Horizon 2030

Funding body: Centre for European Policy Studies (CEPS), CIDOB

Catalonia is a well-defined territory within Spain, with distinctive language, cultural, economic, legal and political identity. These characteristics, together with the historical existence of a Catalan sovereign state since the middle ages to early modern times, have long triggered calls for self-determination in Catalonia. These calls have gained strength progressively over time and complemented by a fundamental discontent for the chronic fiscal imbalances with the Central Administration of Spain. According to the Generalitat of Catalonia (2013), Catalonia contributes more than 19% to total revenues collected by the Central Administration but receives only about 14% of total expenditures undertaken by the latter. The economic implications of the possible secession of Catalonia from Spain are not straightforward and the lack of prior experience or similar cases in the context of the European Union, renders the a priori discussion of the impacts difficult. This study aims to assess the economic implications of a hypothetical secession of Catalonia from Spain. For this purpose, alternative hypothetical secession scenarios have been developed and quantified with the use of a new dedicated version of the GEM-E3 computable general equilibrium model (the "GEM-E3-CAT") that allows the detailed examination of the Catalan economy, and its interconnections with the rest of Spain and the rest of the world. The alternative scenarios have been designed taking into consideration the associated uncertainty and possible modeling limitations of secession, as well as the need to have sufficiently contrasted scenarios and to include the appropriate theoretical considerations. The GEM-E3-CAT model projects macroeconomic and sectoral developments up to 2030, delivering trajectories for a broad range of variables including GDP, investment, employment, activity by sector, trade, public budget and current account balance. Catalonia is identified in the results as a separate region, however the model also provides results  for the rest of Spain, the rest of the EU, the rest of the world and for the world as a whole. The model builds on a reference scenario that projects developments in a business as usualĀ approach, where policies and trends observed in the recent past are assumed to continue to prevail up to 2030. In the reference scenario, Catalonia continues to be an integrated autonomous region of Spain and it continues to bear the consequences of the fiscal imbalances with the Central Administration. Subsequently, alternative scenarios are developed, the results of which are juxtaposed to those of the reference scenario, enabling to evaluate their relative performance.