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Fiscal Rules and Public Spending: Evidence from Italian Municipalities

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  • W. D. Gregori

Abstract

The aim of this paper is to investigate the extent to which local budget spending composition reacts to fiscal rules variations. I consider the budget of Italian municipalities and exploit specific changes in the Domestic Stability Pact s rules, to perform a difference-in-discontinuities analysis. The results show that not all rules are equally effective: imposing a cap on the total amount of consumption and investment is not as binding as two caps, one specific for consumption and a different one for investment spending. More specifically, the consumption variation is triggered by changes in the level of wages and services spending, while investment relies on infrastructure movements. In addition, there is evidence that when an increase in investment is achieved, there is also a higher budget deficit level.

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  • W. D. Gregori, 2014. "Fiscal Rules and Public Spending: Evidence from Italian Municipalities," Working Papers wp923, Dipartimento Scienze Economiche, Universita' di Bologna.
    • Handle: RePEc:bol:bodewp:wp923
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    Cited by:

    1. Venturini, Fiorenza, 2020. "The unintended composition effect of the subnational government fiscal rules: The case of Italian municipalities," European Journal of Political Economy, Elsevier, vol. 63(C).
    2. Fiorenza Venturini, 2018. "The Unintended Composition Effect of the Subnational Government Fiscal Rules: The Case of Italian Municipalities," Working papers 70, Società Italiana di Economia Pubblica.
    3. Sebastian Blesse & Florian Dorn & Max Lay, 2023. "Schwächen Fiskalregeln öffentliche Investitionen?," ifo Schnelldienst, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 76(06), pages 22-28, June.

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    More about this item

    JEL classification:

    • C21 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Cross-Sectional Models; Spatial Models; Treatment Effect Models
    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • H72 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Budget and Expenditures
    • H74 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Borrowing
    • H77 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Intergovernmental Relations; Federalism

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