Declining Free Lunch: State Capacity and Foregone Public Spending

Sarah Fritz, Lorenzo Incoronato () and Catherine van der List

No 12126, CESifo Working Paper Series from CESifo

Abstract: This paper documents substantial fiscal waste in the context of one the world’s largest regional development programs - the EU Cohesion Policy. We study Italy, and find that 20% of funding commitments are never paid out and funneled into unfinished or never-started projects. In our setting, this happens for reasons unrelated to fiscal constraints - municipalities appear to simply leave money on the table. Foregone spending is more prevalent in Southern regions, but there is also stark variation across municipalities within regions. We show that such under-utilization of available funds is strongly associated with limited administrative capacity of local governments.

Keywords: foregone spending; state capacity; fiscal waste (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:ces:ceswps:_12126

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