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Public finance, government spending and economic growth: the case of local governments in Italy

Author

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  • Tommaso Agasisti

    (Politecnico di Milano)

  • Cristian Barra

    (Università di Salerno)

  • Roberto Zotti

    (Università di Torino)

Abstract

This paper contributes to the empirical literature on the linkages between decentralized government spending, public finances, and economic growth at the local level. The impact of local government spending on output growth is estimated using a panel of Italian Labor Market Areas - a group of municipalities adjacent to each other, geographically and statistically comparable, characterized by common commuting ows of the working population - during the 2002-2012 period. The attention is focused both on current and capital expenditures as well as on several spending categories. To handle endogeneity problems between public spending and economic development, a system generalized method of moments has been used. The findings indicate a fairly robust negative relationship between local current government expenditure and economic growth. Investment in capital budget turns out to be not statistically significant when the public spending composition is taken into account. Municipalities located in central-southern regions show, instead, negative growth effect of capital spending, underlining the importance of measuring the efficiency of public spending rather than just being concerned with the absolute level of output. Only few of the expenditure categories (Justice, Tourism and Culture) exhibit positive effects on growth, while Administration & Management and Roads & Transportation have negative growth effect in southern regions.

Suggested Citation

  • Tommaso Agasisti & Cristian Barra & Roberto Zotti, 2020. "Public finance, government spending and economic growth: the case of local governments in Italy," Working papers 99, Società Italiana di Economia Pubblica.
    • Handle: RePEc:ipu:wpaper:99
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    2. Di Tommaso, Marco R. & Prodi, Elena & Di Matteo, Dante & Mariotti, Ilaria, 2022. "Local public spending, electoral consensus, and sustainable structural change," Structural Change and Economic Dynamics, Elsevier, vol. 63(C), pages 435-453.

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    More about this item

    Keywords

    Government size; fiscal decentralization; local expenditures; growth;
    All these keywords.

    JEL classification:

    • H11 - Public Economics - - Structure and Scope of Government - - - Structure and Scope of Government
    • H72 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Budget and Expenditures
    • O43 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Institutions and Growth

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