When green turns costly: The fiscal fallout of EU waste management funds in Italian municipalities

This paper investigates the fiscal consequences of EU-funded waste management projects on local taxation in Italian municipalities. Using a matched framework combined with the staggered difference-in-differences estimator of Sun and Abraham (2021) on panel data from 2007 to 2023, we find that municipalities receiving EU cohesion funds experienced an increase in per-capita waste taxes, driven by rising service costs. This increase is primarily associated with higher costs in the management of residual waste, while costs related to separate waste collection do not rise in a statistically significant manner. A decomposition of waste management costs shows that, despite declining volumes, disposal costs for residual waste increase markedly, consistent with a deterioration in the quality and complexity of the remaining fraction. At the same time, EU-funded interventions lead to a substantial expansion of separate waste collection without a corresponding increase in its operating costs. To assess whether observed cost dynamics reflect inefficiency or technological progress, we estimate changes in total factor productivity using a non-parametric Malmquist index. The results indicate moderate productivity gains in sorted waste management, largely driven by technological advancement, whereas productivity in residual waste management remains broadly stable. These findings suggest a clear policy trade-off: EU-funded waste investments can improve environmental performance by expanding separate collection, but, when downstream treatment capacity and lifecycle cost planning do not keep pace, they may also increase local fiscal pressure through higher waste taxes. Overall, our findings highlight the importance of integrated investment strategies that support environmental objectives while addressing structural rigidities in downstream waste treatment to ensure fiscal sustainability.