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Fiscal Rules and Window Dressing: The Case of Italian Municipalities

Author

Listed:
  • Paolo Balduzzi
  • Veronica Grembi

    () (IEF and CIFREL Catholic University of Milan
    IEF and CIFREL Catholic University of Milan)

Abstract

One of the measure of the effectiveness of fiscal rules is their level of compliance, especially when sub-national fiscal rules are considered. However, the compliance level can be a misleading proxy for the impact of the rules, given the possibilities that fiscal rules trigger window dressing and creative finance. We use evidence from the Italian municipalities budgets, to test the presence of creative accounting as the consequence of subnational fiscal rules, in a context in which the levels of compliance are generally very high but the status of local finance is very poor. A quasi experimental approach is allowed by the special regulation of the Italian Internal Stability Pact between 1999 and 2004.

Suggested Citation

  • Paolo Balduzzi & Veronica Grembi, 2011. "Fiscal Rules and Window Dressing: The Case of Italian Municipalities," Giornale degli Economisti, GDE (Giornale degli Economisti e Annali di Economia), Bocconi University, vol. 70(1), pages 97-122, January.
  • Handle: RePEc:gde:journl:gde_v70_n1_p97-122
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    Citations

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    Cited by:

    1. Paolo Chiades & Luciano Greco & Vanni Mengotto & Luigi Moretti & Paola Valbonesi, 2016. "Intergovernmental transfers and expenditure arrears," Working Papers hal-01442684, HAL.
    2. Federico Revelli, 2013. "Tax limits and local democracy," Working Papers 2013/29, Institut d'Economia de Barcelona (IEB).
    3. Veronica Grembi & Alvaro Manoel, 2012. "Fiscal rules for subnational governments? Evidence from Latin America," Chapters,in: Decentralization and Reform in Latin America, chapter 12, pages iii-iii Edward Elgar Publishing.
    4. Federico Revelli, 2016. "Tax limits and local elections," Public Choice, Springer, vol. 166(1), pages 53-68, January.
    5. Maria Flavia Ambrosanio & Paolo Balduzzi & Massimo Bordignon, 2014. "Economic crisis and fiscal federalism in Italy," Working papers 8, Società Italiana di Economia Pubblica.

    More about this item

    Keywords

    Fiscal Rules; Municipalities; Local Finance; Difference in Difference; Italy;

    JEL classification:

    • H72 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Budget and Expenditures
    • H75 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Government: Health, Education, and Welfare
    • H77 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Intergovernmental Relations; Federalism

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