This paper studies whether there is a relation between the debt level of local governments and their levels of decentralization. We carry out an empirical study of Catalan and Valencian municipalities with a population of more than 20,000 inhabitants. The results support that there is a positive relationship between debt and the decentralization of services in local governments, which implies the need to question the relevance of the financial reporting of Spanish municipalities, bearing in mind that there is no consolidated financial reporting.