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Redistribution and risk-sharing effects of intergovernmental transfers: an empirical analysis based on Italian municipal data

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  • Giampaolo Arachi
  • Francesco Porcelli
  • Alberto Zanardi

Abstract

This paper studies the redistributive and risk-sharing effects of intergovernmental grants at the municipal level, taking advantage of the 2015 reform of the Italian municipal equalization system. The reform introduces formula grants to equalize the fiscal gap only in municipalities in standard regions, but not in municipalities located in special autonomous regions. We can, therefore, use difference-in-differences estimators to identify the causal relationship between formula grants and local gross domestic product thanks to this asymmetric pattern. The final results show that formula grants lead to greater redistribution than pre-reform transfers. On the contrary, new transfers have low risk-sharing effects due to the lag in data available to evaluate fiscal capacity and expenditure needs.

Suggested Citation

  • 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.
    • Handle: RePEc:taf:regstd:v:57:y:2023:i:8:p:1523-1534
    DOI: 10.1080/00343404.2022.2149726
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