When Green Turns Costly: The Fiscal Fallout of EU Waste Management Funds in Italian Municipalities

This paper investigates the fiscal consequences of EU-funded waste management projects on local taxation in Italian municipalities. Using a difference-in-differences approach on panel data from 2007 to 2023, we find that municipalities receiving EU cohesion funds experienced a significant increase in per-capita waste taxes, driven by rising service costs. A decomposition of these costs reveals that while separate waste collection expanded — in line with sustainability goals — the associated logistical and operational expenses increased sharply. Conversely, although the vol- ume of unsorted waste declined, disposal costs rose, likely due to lower quality and more complex treatment requirements. To assess whether cost increases reflected inefficiency or technological progress, we estimate total factor productivity changes via a non-parametric Malmquist index. The results indicate substantial productivity gains in sorted waste management, mostly from technological advancement, but also suggest transitional inefficiencies. Our findings highlight the need for more integrated investment strategies to balance environmental goals with fiscal sustainability.