Using a panel of 268 European regions during 1990-2014, we document that the degree of local government's autonomy has a significant positive effect on the geographic cross-sectional fiscal spending multiplier. Measured with the “Local Autonomy Index” constructed by a panel of experts under the auspices of the European Commission, the estimated geographic cross-sectional fiscal spending multiplier is on average close to zero in countries with the lowest degree of local autonomy, and around unity in countries with the highest degree of local autonomy. Multipliers are state-dependent: larger when GDP is below trend and when there is slack in the labor market; in those states local autonomy has a particularly large positive effect on the multiplier. To explain the empirical findings, we build a DSGE model where both local and central government spending contribute to a public good that enhances labor productivity in the private sector. The multiplier is higher in countries where local government spending has a larger share in the production of the public good.