C  2011 Public Financial Publications, Inc. Disparities in the Spending Needs of Highland Municipalities JAIME VALL ´ ES-GIM ´ ENEZ AND ANABEL Z ´ ARATE-MARCO A certain rough consensus holds that highland municipalities have higher spending needs than others, because of the particularly adverse conditions in which they provide essential public services. However, there is no empirical evidence to support this assertion. This study examines whether any relevant differences actually exist in the spending policies of highland and lowland municipalities. To this end, we make logarithmic estimations of per capita municipal spending in order to determine whether the indicators selected, which are based on local government powers, adequately reflect spending needs. Our results point to the special circumstances of highland districts as a key explanatory factor for higher municipal spending, along with demographic factors, locational population patterns, economic activity, subsidies, and local fiscal capacity. INTRODUCTION Public sector intervention in highland municipalities is justified basically on two grounds. The more ambitious and far-reaching of these is the need to foster development of districts that are often depressed, sometimes ignored, and almost always economically backward. In fact, given the need for measures to foster rural development, especially in mountain areas, a series of strategies has emerged linked with initiatives to foster economic develop- ment, protect the environment, and help the farm sector, among other objectives. However, it is only recently that this concern for progress in the highlands has begun to receive any attention from government and economic planners. Internationally, the Agenda 21 document drawn up in 1991 by the United Nations and the European Union defines these territories as marginal areas, remarking that their main problems are due to geographical re- moteness, the difficulties of the terrain, demographic weakness, limited scope for economic Jaime Vall´ es-Gim´ enez is at the University of Zaragoza, Department of Public Economics, Faculty of Eco- nomics and Business Studies, Gran V´ ıa 2, 50005 Zaragoza, Spain. He can be reached at jvalles@unizar.es. Anabel Z´ arate-Marco is at the University of Zaragoza, Department of Public Economics, Faculty of Economics and Business Studies, Campus Rio Ebro, Zaragoza 50018, Spain. She can be reached at azarate@unizar.es. The authors acknowledge financial support provided by the Asociaci´ on de Entidades Locales del Pirin´ eo Aragon´ es (ADELPA) and the University of Zaragoza. 26 Public Budgeting & Finance / Fall 2011