The beat-up Fiat Uno’s white bonnet is dotted and dominated by a flag dating back to Spain’s dictatorship. Specially created for a contemporary arts festival in the north-east city of Figueres this autumn, the art work – called Oscillating Ideologies – aimed to provoke reflection on the continued presence of General Franco’s ideas and attitudes in Spanish society today. But far from being seen on the streets as planned, the Fiat has never made it out of the garage.

The artistic creation was blocked by Figueres’ city council, led by the Catalan party Convergence and Union, whose members expressed concern that it would needlessly pick at the wounds of Spain’s bloody past.

“They didn’t want to talk about it with us, or hear our side,” said the artist, Núria Güell, who along with Levi Orta, created the piece.

The row has sparked a national discussion on how, 40 years after Franco’s death, the legacy of his 36 years of unopposed rule still casts a long shadow over Spain.

“It’s like a ghost that is always wandering Spanish society,” said Güell. “Even though the project wasn’t shown, I think it achieved what we were hoping for.”

Friday marks 40 years to the day since Franco died at the age of 82, giving way to a dizzying pace of economic and social modernisation in Spain. In many ways the day will play out similarly to previous years, with a small number of loyal Franco supporters paying tribute to the dictator, with others asserting that Spain must do more to address its turbulent past, and some voicing concerns that the divisions laid bare during the country’s 1936-1939 civil war and ensuing dictatorship have never healed.

General Franco in 1975. Photograph: Rex

Save for one key difference: the four decade mark comes as the country stands again in the grip of political transformation, led by the country’s crop of leftist mayors as well as the national newcomers, the leftwing party Podemos and centre-right Ciudadanos. Their push for democratic regeneration has cast new scrutiny on the transition that followed Franco’s death, with some now calling for a second transition to tackle the thorny issues set aside in the fragile political climate of the last 40 years.

As Spain faced the daunting task of organising democratic elections after the dictatorship, its priority was to ensure that the country did not slide into chaos, explained Pedro J Ramírez, a well-known journalist in Spain, who this year launched the digital news site El Español. “When Franco died, the great obsession of the founding fathers was to protect the political system from instability.”

Ramírez argues that the quality of Spanish democracy is now eroding, under fire from the same concentration of powers that were once sought to protect it.

The system, he said, had been designed to coordinate legislative, executive and judicial powers. “And with the passing of time democracy became a particracy – or a concentration of power within the hands of those at the top.” Today there is a wide gulf between most citizens and those people in power, a divide exacerbated by the economic crisis.

Campaigners focusing on historical memory have laid the groundwork for the scrutiny facing the transition today.

In 2000, another journalist, Emilio Silva, carried out the first scientific dig for the remains of his grandfather and a dozen other victims of the civil war from a mass grave in northern Spain. He imagined it as the first step in a broader movement to tackle the ghosts of Spain’s past. “Because when we opened graves, when we search for our grandparents, when we spoke out about what they did, in some way we opened a space to criticise everything we had been told about the transition,” he said.

His actions laid the groundwork for the Association for the Recovery of Historical Memory, which is dedicated to helping family members uncover the remains of relatives lost during the civil war and dictatorship and scattered in the 2,000 known mass graves that dot the country. About 1,300 bodies have since been recovered.

In 2007, the Socialist government backed Silva’s movement, introducing the country’s first historical memory law. The law removed Francoist monuments and symbols from public places and made it easier to locate and exhume the remains of the estimated 114,000 people who disappeared during the civil war and the ensuing dictatorship.

Years later campaigners say much of the progress envisioned by the law has stalled, and has been consistently countered by those who openly celebrate the dictator.

While few in Germany or Italy would openly pay tribute to Adolf Hitler or Benito Mussolini, on Friday Franco supporters from across the country and beyond will gather for a mass at the Spanish dictator’s grave in the basilica at the Valley of the Fallen, the imposing complex carved into the granite mountains near Madrid.

In early December, the Francisco Franco Foundation, dedicated to celebrating the dictator’s life and work, will hold a dinner to highlight the achievements of Franco’s long rule.

The Valley of the Fallen monument to Francoist combatants killed in the Spanish civil war. Photograph: Philippe Desmazes/AFP/Getty

Spanish efforts to address the country’s recent history in a balanced way have been complicated by groups such as the Catholic Church, the custodian of the Valley of the Fallen, or Valle de los Caídos, where the tomb of Franco lies near the remains of more than 33,000 Spaniards killed in the civil war. The church’s conference of bishops lashed out at the Socialists over the historical memory law, accusing them of opening old wounds and exacerbating existing divisions in the country.

The situation in Spain contrasts sharply with the truth commissions set up in countries such as Chile and Argentina, said Raúl Quirós, the 34-year-old artistic director of Theatre for Memory, a group that uses theatre to tell the stories of Spain’s civil war and dictatorship.

But with the passing of time, Spain’s “pact of forgetting”, the unspoken agreement between left and right to look forward rather than peer into the past, is being increasingly chipped away.

In September a local court agreed, for the first time ever, to hear a legal challenge launched against the Valley of the Fallen, by descendants of victims wishing their relatives’ bodies be removed from the complex. This year the state-funded Royal Academy of History officially defined Franco as a dictator. And this week in Barcelona the leftist city council said it would provide help to residents interested in offering testimony in Argentina, where a judge has invoked the principle of universal justice to address Franco-era crimes.

Quirós said that some of this change could be attributed to the indignados movement that took root in Spain’s squares and then migrated into politics, the media and history. While previous generations saw the transition as a sacrifice of justice to protect the peace, “the new generation hasn’t experienced Franco, so we have nothing to lose”, said Quirós.

One of the most poignant examples of this change is in Ferrol, the Galician city in Spain’s north-west where Franco was born in 1892. Deeply religious and with a long-standing military tradition, the city is today governed by a Podemos-backed leftist coalition, Ferrol en Común.

Franco constantly sought to separate politics from the reality of Spaniards’ everyday lives, often saying “be like me and don’t meddle in politics”. For many people today – including the voters in Ferrol who recently channelled their anger over double-digit unemployment and persistent corruption into votes for the citizen-led Ferrol en Común – the coalition signals a break with Franco’s way of seeing politics.

Inés Arrimadas, leader of Spain’s Ciudadanos branch in Catalonia. Photograph: Gerard Julien/AFP/Getty

Ferrol’s new mayor, Jorge Suárez, who was born the year Franco died, is calling on Spaniards to take the next step. “I think a second transition is necessary,” he said. “There’s a clamour to move forward from the first transition. It was peaceful, but defective because democracy wasn’t fully reached. Now we need laws that attend to the needs of citizens and not bank accounts or deficit targets.”

It is a message echoed across Spain, particularly by the parties Podemos and Ciudadanos. The strength of the idea will be put to the test next month as Spaniards cast their ballots in a general election on 20 December. Polls suggest that the election will be a four-horse race, further fragmenting the bipartisan system that has characterised Spanish politics since the death of Franco.

Podemos has been perhaps the most vocal in confronting the shortcomings of Spain’s past, with its leader, Pablo Iglesias, vowing to do away with La Casta, the name he uses to refer to the regime that has governed Spain since the transition.

Podemos includes several historical memory campaigners who argue that the time has come to honestly look into Spain’s past, so as to break with a transition that left Spain saddled with a deeply corrupt system which eschewed checks and balances for crony capitalism.

Four decades after Franco’s death brought an end to his dictatorship there is a growing number of people in Spain who agree with Iglesias. “It’s curious, isn’t it?” he remarked. “It’s as though Spanish history happens in blocks of around 40 years.”

He has few doubts that Spain is once again on the cusp of change. “I’m sure we’re in a new transition period,” he said. “I think everyone recognises that now nothing will be the same.”