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Fiscal rules and budget forecast errors of Italian municipalities

Matteo Picchio () and Raffaella Santolini ()

European Journal of Political Economy, 2020, vol. 64, issue C

Abstract: We study the impact of the domestic stability pact on the accuracy of budget forecasts of Italian municipalities. Identification of the causal effect exploits a quasi-natural experiment generated by the removal in 2001 of the fiscal restraints on budget decisions for municipalities with fewer than 5000 inhabitants and by stricter budgetary restrictions and severe penalties for noncompliers in 2002. We find that relaxing fiscal rules had a sizeable impact on budget forecast errors, especially in 2002. In fact, revenue (expenditure) forecast errors for municipalities with fewer than 5000 inhabitants became 26% (22%) larger than in the past.

Keywords: Budget forecast errors; Sub-central fiscal rules; Italian municipalities; Quasi-natural experiment; Difference-in-discontinuities design (search for similar items in EconPapers)
JEL-codes: E62 H68 H72 (search for similar items in EconPapers)
Date: 2020
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Working Paper: Fiscal rules and budget forecast errors of Italian Municipalities (2019) Downloads
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Persistent link: https://EconPapers.repec.org/RePEc:eee:poleco:v:64:y:2020:i:c:s0176268020300690

DOI: 10.1016/j.ejpoleco.2020.101921

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