EconPapers    
Economics at your fingertips  
 

The unintended composition effect of the subnational government fiscal rules: The case of Italian municipalities

Fiorenza Venturini

European Journal of Political Economy, 2020, vol. 63, issue C

Abstract: Although numerical fiscal rules may be introduced to achieve several objectives, to date the maintenance of fiscal sustainability is their predominant goal. This is particularly true at subnational level; maintaining fiscal discipline in a decentralized setting is challenging and subnational government fiscal rules are considered one of the most valid solutions to the problem. While theoretical and empirical literature has mainly focused on their effectiveness in containing subnational deficit and/or debt, little attention has been paid to the possible trade–offs and side effects of the rules on the composition of subnational expenditure. The aim of this paper is to fill this gap by exploiting the case of Italian municipalities, which have been subject for fifteen years (1999–2015) to a set of rules called Domestic Stability Pact. The Italian DSP framework – imposing rules only on municipalities above a population threshold (5000 inhabitants) – allows us to implement a quasi–experimental technique to investigate the unintended composition effects of the rules. A difference–in–discontinuities design permits to find rigorous empirical evidence that the switching in 2007 to rules which are more binding in terms of fiscal discipline leads to a recomposition of municipal expenditure against investment spending. The analysis is then integrated by evaluating the impact of the rules on six categories of investment expenditure. Investment in human capital and infrastructure seems to be the most affected.

Keywords: Fiscal rules; Local expenditure; Local spending composition; Investment spending (search for similar items in EconPapers)
JEL-codes: E62 H72 H77 R53 (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: Track citations by RSS feed

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0176268020300227
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:poleco:v:63:y:2020:i:c:s0176268020300227

DOI: 10.1016/j.ejpoleco.2020.101874

Access Statistics for this article

European Journal of Political Economy is currently edited by J. De Haan, A. L. Hillman and H. W. Ursprung

More articles in European Journal of Political Economy from Elsevier
Bibliographic data for series maintained by Nithya Sathishkumar ().

 
Page updated 2021-03-09
Handle: RePEc:eee:poleco:v:63:y:2020:i:c:s0176268020300227