IDEAS home Printed from https://ideas.repec.org/a/kap/itaxpf/v31y2024i6d10.1007_s10797-024-09856-7.html
   My bibliography  Save this article

The determinants of the financial distress of Italian municipalities: How much is it due to inadequate resources?

Author

Listed:
  • Emanuele Padovani

    (University of Bologna)

  • Francesco Porcelli

    (University of Bari)

  • Alberto Zanardi

    (University of Bologna)

Abstract

The key question addressed in this work is whether financial distress recently experienced by several Italian municipalities can be at least partially imputed to the inadequacy of the financial resources they suffer compared to the needs of their populations and their territories. Starting from a multidimensional definition of financial distress, we investigate this issue by exploiting the variability across municipalities revealed by two different occurrences recently involving the intergovernmental fiscal relations in Italy: on the one hand, the large cuts in vertical transfers carried out by the central government as part of the fiscal consolidation strategy in the period 2014–2015 which affected single municipalities to varying degrees; and, on the other hand, the introduction of a new mechanism of equalization transfers at municipal level which showed how the gap between available financial resources to local needs is differentiated across municipalities. Exploiting these sources of variability across local authorities, the estimation results show that the Italian municipalities which suffer a level of resources lower than that necessary to provide public services at a standard level are, ceteris paribus, more likely to run into financial difficulties. By the same token, large cuts in central government transfers have a statistically significant effect on financial vulnerability at municipal level.

Suggested Citation

  • Emanuele Padovani & Francesco Porcelli & Alberto Zanardi, 2024. "The determinants of the financial distress of Italian municipalities: How much is it due to inadequate resources?," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 31(6), pages 1494-1533, December.
    • Handle: RePEc:kap:itaxpf:v:31:y:2024:i:6:d:10.1007_s10797-024-09856-7
    DOI: 10.1007/s10797-024-09856-7
    as

    Download full text from publisher

    File URL: http://link.springer.com/10.1007/s10797-024-09856-7
    File Function: Abstract
    Download Restriction: Access to full text is restricted to subscribers.
    File URL: https://libkey.io/10.1007/s10797-024-09856-7?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Manuel Pedro Rodríguez Bolívar & Andrés Navarro Galera & Laura Alcaide Muñoz & María Deseada López Subirés, 2016. "Risk Factors and Drivers of Financial Sustainability in Local Government: An Empirical Study," Local Government Studies, Taylor & Francis Journals, vol. 42(1), pages 29-51, January.
    2. Isabel-María García-Sánchez & Noemí Mordán & Beatriz Cuadrado-Ballesteros, 2014. "Do electoral cycles affect local financial health?," Policy Studies, Taylor & Francis Journals, vol. 35(6), pages 533-556, November.
    3. John Ashworth & Benny Geys & Bruno Heyndels, 2005. "Government Weakness and Local Public Debt Development in Flemish Municipalities," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 12(4), pages 395-422, August.
    4. Sandra Cohen & Sotirios Karatzimas & Vassilios-Christos Naoum, 2017. "The sticky cost phenomenon at the local government level: empirical evidence from Greece," Journal of Applied Accounting Research, Emerald Group Publishing Limited, vol. 18(4), pages 445-463, November.
    5. Christian Raffer & Andrés Ponce, 2021. "European Patterns of Local Government Fiscal Regulation," Springer Books, in: René Geissler & Gerhard Hammerschmid & Christian Raffer (ed.), Local Public Finance, pages 73-90, Springer.
    6. Bernardino Benito & Francisco Bastida, 2004. "The determinants of the municipal debt policy in Spain," Journal of Public Budgeting, Accounting & Financial Management, Emerald Group Publishing Limited, vol. 16(4), pages 492-525, March.
    7. Giampaolo Arachi & Francesco Porcelli & Alberto Zanardi, 2023. "Redistribution and risk-sharing effects of intergovernmental transfers: an empirical analysis based on Italian municipal data," Regional Studies, Taylor & Francis Journals, vol. 57(8), pages 1523-1534, August.
    8. Albert Solé-Ollé, 2006. "The effects of party competition on budget outcomes: Empirical evidence from local governments in Spain," Public Choice, Springer, vol. 126(1), pages 145-176, January.
    9. Emanuele Padovani & Silvia Iacuzzi & Susana Jorge & Liliana Pimentel, 2021. "Municipal financial vulnerability in pandemic crises: a framework for analysis," Journal of Public Budgeting, Accounting & Financial Management, Emerald Group Publishing Limited, vol. 33(4), pages 387-408, April.
    10. Stewart Jones & R. G. Walker, 2007. "Explanators of Local Government Distress," Abacus, Accounting Foundation, University of Sydney, vol. 43(3), pages 396-418, September.
    11. Inman, Robert P, 1995. "How to Have a Fiscal Crisis: Lessons from Philadelphia," American Economic Review, American Economic Association, vol. 85(2), pages 378-383, May.
    12. Wildmer Daniel Gregori & Luigi Marattin, 2019. "Determinants of fiscal distress in Italian municipalities," Empirical Economics, Springer, vol. 56(4), pages 1269-1281, April.
    13. Flora Cunha Lobo & Pedro Ramos & Oscar Lourenco, 2011. "Causes of financial distress of Portuguese municipalities: empirical evidence," International Journal of Monetary Economics and Finance, Inderscience Enterprises Ltd, vol. 4(4), pages 390-409.
    14. Christian Person, 2021. "Municipalities and Excessive Debt: Local Insolvency Regimes as an Alternative to Bailouts?," Springer Books, in: René Geissler & Gerhard Hammerschmid & Christian Raffer (ed.), Local Public Finance, pages 209-226, Springer.
    15. Teresa Ter-Minassian, 2007. "Fiscal Rules for Subnational Governments: Can They Promote Fiscal Discipline?," OECD Journal on Budgeting, OECD Publishing, vol. 6(3), pages 1-11.
    16. Emanuele Padovani & Luca Rescigno & Jacopo Ceccatelli, 2018. "Municipal Bond Debt and Sustainability in a Non-Mature Financial Market: The Case of Italy," Sustainability, MDPI, vol. 10(9), pages 1-25, September.
    17. Emma Capalbo & Giuseppe Grossi, 2014. "Assessing the influence of socioeconomic drivers on Italian municipal financial destabilization," Public Money & Management, Taylor & Francis Journals, vol. 34(2), pages 107-114, March.
    18. Thomas Ahrens & Laurence Ferry, 2020. "Financial resilience of English local government in the aftermath of COVID-19," Journal of Public Budgeting, Accounting & Financial Management, Emerald Group Publishing Limited, vol. 32(5), pages 813-823, August.
    19. Juraj Nemec & David Špaček, 2020. "The Covid-19 pandemic and local government finance: Czechia and Slovakia," Journal of Public Budgeting, Accounting & Financial Management, Emerald Group Publishing Limited, vol. 32(5), pages 837-846, August.
    20. Maarten Adriaan Allers & Joes Gordon Natris, 2021. "Preventing Local Government Defaults: No-Bailout Policy and Its Alternatives," Springer Books, in: René Geissler & Gerhard Hammerschmid & Christian Raffer (ed.), Local Public Finance, pages 187-207, Springer.
    21. repec:eme:jaar00:jaar-03-2015-0019 is not listed on IDEAS
    22. John M. Trussel & Patricia A. Patrick, 2009. "A predictive model of fiscal distress in local governments," Journal of Public Budgeting, Accounting & Financial Management, Emerald Group Publishing Limited, vol. 21(4), pages 578-616, March.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Dionisio Buendía-Carrillo & Juan Lara-Rubio & Andrés Navarro-Galera & María Elena Gómez-Miranda, 2020. "The impact of population size on the risk of local government default," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 27(5), pages 1264-1286, October.
    2. Lotta-Maria Sinervo, 2020. "Financial Sustainability of Local Governments in the Eyes of Finnish Local Politicians," Sustainability, MDPI, vol. 12(23), pages 1-16, December.
    3. Giovanna Lucianelli & Francesca Citro & Serena Santis & Alfredo Ettore Tranfaglia & Andrea Mazzillo, 2017. "How to Improve the Financial Conditions of Local Governments in a Period of Crisis: An Explanatory Case Study," International Journal of Business and Management, Canadian Center of Science and Education, vol. 13(1), pages 1-53, December.
    4. Wildmer Daniel Gregori & Luigi Marattin, 2019. "Determinants of fiscal distress in Italian municipalities," Empirical Economics, Springer, vol. 56(4), pages 1269-1281, April.
    5. Guyot, Alexis & Doumpos, Michael & Zopounidis, Constantin, 2016. "A novel multi-attribute benchmarking approach for assessing the financial performance of local governments: Empirical evidence from FranceAuthor-Name: Galariotis, Emilios," European Journal of Operational Research, Elsevier, vol. 248(1), pages 301-317.
    6. Perugini, Francesco, 2024. "Local government efficiency and economic growth: The Italian case," Socio-Economic Planning Sciences, Elsevier, vol. 91(C).
    7. Aldona Standar & Agnieszka Kozera, 2020. "Identifying the Financial Risk Factors of Excessive Indebtedness of Rural Communes in Poland," Sustainability, MDPI, vol. 12(3), pages 1-25, January.
    8. Mourão Paulo Reis & Bronić Mihaela & Stanić Branko, 2023. "The Impact of Local Governments’ Budget Transparency on Debt in Croatia," South East European Journal of Economics and Business, Sciendo, vol. 18(2), pages 21-33, December.
    9. Jan Kluge & Gunther Markwardt & Christian Thater, 2015. "Self-preserving Leviathans - Evidence from Regional-level Data," CESifo Working Paper Series 5177, CESifo.
    10. Stefanie Vanneste & Stijn Goeminne, 2020. "The role of the past in public policy: empirical evidence of the long-term effect of past policy and politics on the local budget balance," Economics of Governance, Springer, vol. 21(1), pages 75-99, March.
    11. Jan Kluge & Gunther Markwardt & Christian Thater, 2017. "Self-Preserving Leviathans Evidence from Local-Level Data," Kyklos, Wiley Blackwell, vol. 70(4), pages 594-621, November.
    12. Agnieszka Kozera & Małgorzata Dworakowska-Raj & Aldona Standar, 2021. "Role of Local Investments in Creating Rural Development in Poland," Energies, MDPI, vol. 14(6), pages 1-30, March.
    13. Áron Kiss, 2009. "Coalition politics and accountability," Public Choice, Springer, vol. 139(3), pages 413-428, June.
    14. Antulov-Fantulin, Nino & Lagravinese, Raffaele & Resce, Giuliano, 2021. "Predicting bankruptcy of local government: A machine learning approach," Journal of Economic Behavior & Organization, Elsevier, vol. 183(C), pages 681-699.
    15. Ricardo Lopes Cardoso & Ricardo Rocha de Azevedo & José Alexandre Magrini Pigatto & Bernardo de Abreu Guelber Fajardo & Armando Santos Moreira da Cunha, 2023. "Lessons from Brazil's unsuccessful fiscal decentralization policy to fight COVID‐19," Public Administration & Development, Blackwell Publishing, vol. 43(2), pages 106-119, May.
    16. Roberto Cabaleiro‐Casal & Enrique Buch‐Gómez, 2021. "Female politicians in municipal councils and fiscal performance," Economics and Politics, Wiley Blackwell, vol. 33(2), pages 289-314, July.
    17. Reiner Eichenberger & David Stadelmann, 2009. "Consequences of Debt Capitalization: Property Ownership and Debt/Tax Choice," CREMA Working Paper Series 2009-08, Center for Research in Economics, Management and the Arts (CREMA).
    18. Kristien Werck & Bruno Heyndels & Benny Geys, 2008. "The impact of ‘central places’ on spatial spending patterns: evidence from Flemish local government cultural expenditures," Journal of Cultural Economics, Springer;The Association for Cultural Economics International, vol. 32(1), pages 35-58, March.
    19. Tyrefors Hinnerich, Björn, 2009. "Do merging local governments free ride on their counterparts when facing boundary reform?," Journal of Public Economics, Elsevier, vol. 93(5-6), pages 721-728, June.
    20. Manuel E. Lago & Santiago Lago-Peñas & Jorge Martinez-Vazquez, 2024. "On the effects of intergovernmental grants: a survey," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 31(3), pages 856-908, June.

    More about this item

    Keywords

    Financial distress; Resources inadequacy; Local government; Italy;
    All these keywords.

    JEL classification:

    • H70 - Public Economics - - State and Local Government; Intergovernmental Relations - - - General
    • H72 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Budget and Expenditures
    • H77 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Intergovernmental Relations; Federalism

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:kap:itaxpf:v:31:y:2024:i:6:d:10.1007_s10797-024-09856-7. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Sonal Shukla or Springer Nature Abstracting and Indexing (email available below). General contact details of provider: http://www.springer.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.