EconPapers    
Economics at your fingertips  
 

The Unintended Composition Effect of the Subnational Government Fiscal Rules: The Case of Italian Municipalities

Fiorenza Venturini ()
Additional contact information
Fiorenza Venturini: Università di Roma - La Sapienza

Working papers from Società Italiana di Economia Pubblica

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 (5,000 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)
New Economics Papers: this item is included in nep-mac and nep-pbe
Date: 2018-04
References: View references in EconPapers View complete reference list from CitEc
Citations: Track citations by RSS feed

Downloads: (external link)
http://www.siepweb.it/siep/images/joomd/1524577143Venturini_WP_SIEP_736.pdf Full text (application/pdf)

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:ipu:wpaper:70

Access Statistics for this paper

More papers in Working papers from Società Italiana di Economia Pubblica Società Italiana di Economia Pubblica Corso Strada Nuova 65 27100 Pavia Italia.
Bibliographic data for series maintained by Simona Scabrosetti ().

 
Page updated 2019-04-23
Handle: RePEc:ipu:wpaper:70