This paper analyzes the determinants of welfare benefit levels within a highly fiscally decentralized context. More specifically, we analyze the role of mimicking as a driver of the institutional design of subnational government policies in the absence of federal co-ordination and financing. Empirically we focus on the welfare benefit programs of Spanish regional governments during the period 1996-2015. Our results strongly support the significant role played by mimicking: regional public agents observe what their peers are doing and act accordingly, and this takes place even in a context of low mobility of households. Moreover, we find evidence of vertical externalities: even in a completely decentralized framework, regions consider the benefits set by the central government as a benchmark when determining their own welfare benefit level
