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Determinants of fiscal distress in Italian municipalities

Author

Listed:
  • Wildmer Daniel Gregori

    (European Commission, Joint Research Center (JRC)-Ispra)

  • Luigi Marattin

    (University of Bologna)

Abstract

How important is to place limits on specific categories of local public spending in order to prevent municipalities’ defaults? In this paper we consider Italian municipalities from 2000 to 2012. We use a logit model to investigate which of the main budget indicators (debt repayments, current budget equilibrium, amount of residuals and personnel costs) is relatively more important in affecting the default probability. Our results suggest that a 10% rise in the share of loan repayment over total spending leads to an increase in default probability by 2.6% on average. These findings are robust to alternative model specifications and the inclusion of fixed effects, time dummies and macroeconomic control variables. Our analysis thus shows that Italian municipalities seem to be on the default path when they are incapable to fully internalize the effects of issuing new debt today on the current equilibrium of tomorrow. To place limits on specific types of public spending seems to be relatively less important.

Suggested Citation

  • Wildmer Daniel Gregori & Luigi Marattin, 2019. "Determinants of fiscal distress in Italian municipalities," Empirical Economics, Springer, vol. 56(4), pages 1269-1281, April.
  • Handle: RePEc:spr:empeco:v:56:y:2019:i:4:d:10.1007_s00181-017-1386-3
    DOI: 10.1007/s00181-017-1386-3
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    More about this item

    Keywords

    Local government; Default; Local public debt; Fiscal distress; Panel regressions;
    All these keywords.

    JEL classification:

    • 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

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