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Fiscal rules and budget forecast errors of Italian Municipalities

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  • Matteo Picchio

    () (Dipartimento di Scienze Economiche e Sociali - Universita' Politecnica delle Marche)

  • Raffaella Santolini

    () (Dipartimento di Scienze Economiche e Sociali - Universita' Politecnica delle Marche)

Abstract

We study the impact of the domestic stability pact on the budget forecast errors of Italian municipalities. The identification of the causal effect exploits a quasi-natural experiment generated by the removal in 2001 of the fiscal restraints on budget decisions for municipalities with less than 5,000 inhabitants and by stricter budgetary restrictions and severe penalties for noncompliers in 2002. We find that relaxing fiscal rules had a sizeable impact on budget forecast errors, especially in 2002. Revenue (expenditure) forecast errors for municipalities below 5,000 inhabitants became indeed 26% (22%) larger than in the past.

Suggested Citation

  • Matteo Picchio & Raffaella Santolini, 2019. "Fiscal rules and budget forecast errors of Italian Municipalities," Working Papers 438, Universita' Politecnica delle Marche (I), Dipartimento di Scienze Economiche e Sociali.
    • Handle: RePEc:anc:wpaper:438
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    Keywords

    budget forecast errors; sub-central fiscal rules; Italian municipalities; quasi-natural experiment; differencein-discontinuities design.;

    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
    • H68 - Public Economics - - National Budget, Deficit, and Debt - - - Forecasts of Budgets, Deficits, and Debt
    • H72 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Budget and Expenditures

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