Weaknesses and perspectives of municipal finance in southern Italy in the eve of Covid-19

The Covid-19 pandemic hit Southern Italian municipalities during a period when they were already suffering from significant budgetary challenges, especially for those of bigger size. On the revenue side, southern cities depend heavily on central government transfers, in part because of a smaller local tax base and more difficulties in collecting taxes. Their current expenditures show a higher share of non-squeezable items (personnel costs, interest on the debt and coverage of the previous deficit). Over the last decade, southern municipalities have been heavily affected by the contraction in government transfers and the tightening of local fiscal rules. Consequently, they have been less able, with respect to the rest of the country, to provide essential public services and to invest. Looking ahead, the difficulties of southern cities can be overcome through the completion of an equalization system that takes full account of the differences in expenditure needs and fiscal capacities, better enforcement of tax collection and more efficient use of resources.