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The domestic stability pact in Italy: a rule for discipline?

  • Giuriato, Luisa
  • Gastaldi, Francesca

The 1999-2006 versions of the Italian Domestic Stability Pact had many shortcomings and a modest impact with respect to the aim of aligning the fiscal behaviour of sub-national government units with the national commitments under the European Stability and Growth Pact. The Domestic Pact was revised in 2007 and 2008 to tighten the monitoring and sanctions framework and prevent some inefficient behaviour. However, some undesirable features still mar the new regime: no coordination exists between the Domestic Pact and the debt and tax constraints applied to local governments; a clear definition of the contribution of sub-national governments to aggregate compliance with the external rule is still lacking; flexibility has been introduced by means of an artificial reference budget balance; side effects on resource redistribution are ignored; and monitoring and sanctioning remain weak. Remedies for the above shortcomings can possibly be found in the domestic pacts of the other EMU countries. Most of all, the Domestic Pact should be adjusted to the specific characteristics of fiscal decentralization in Italy, where a large fiscal gap exists, revenue autonomy is constrained and a large share of the responsibility for spending is rigid and politically sensitive.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 15183.

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Date of creation: Apr 2009
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Handle: RePEc:pra:mprapa:15183
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  1. Guiseppe Pisauro, 2001. "Intergovernmental Relations and Fiscal Discipline; Between Common Tax Resources and Soft Budget Constraints," IMF Working Papers 01/65, International Monetary Fund.
  2. Astrid Lübke, 2005. "Fiscal Discipline between Levels of Government in Germany," OECD Journal on Budgeting, OECD Publishing, vol. 5(2), pages 23-37.
  3. Douglas Sutherland & Robert W.R. Price & Isabelle Joumard, 2005. "Fiscal Rules for Sub-central Governments: Design and Impact," OECD Economics Department Working Papers 465, OECD Publishing.
  4. Bordignon, Massimo & Manasse, Paolo & Tabellini, Guido, 1996. "Optimal Regional Redistribution Under Asymmetric Information," CEPR Discussion Papers 1437, C.E.P.R. Discussion Papers.
  5. Miguel Miaja, 2005. "Fiscal Discipline in a Decentralised Administration: The Spanish Experience," OECD Journal on Budgeting, OECD Publishing, vol. 5(2), pages 39-54.
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  7. David E. Wildasin, 2001. "Externalities and Bailouts: Hard and Soft Budget Constraints in Intergovernmental Fiscal Relations," Public Economics 0112002, EconWPA.
  8. Barry Eichengreen & Jurgen von Hagen, 1996. "Fiscal Policy and Monetary Union: Is There a Tradeoff between Federalism and Budgetary Restrictions?," NBER Working Papers 5517, National Bureau of Economic Research, Inc.
  9. Maria A Albino-War & Raju Jan Singh & Ehtisham Ahmad, 2005. "Subnational Public Financial Management; Institutions and Macroeconomic Considerations," IMF Working Papers 05/108, International Monetary Fund.
  10. Weingast, Barry R & Shepsle, Kenneth A & Johnsen, Christopher, 1981. "The Political Economy of Benefits and Costs: A Neoclassical Approach to Distributive Politics," Journal of Political Economy, University of Chicago Press, vol. 89(4), pages 642-64, August.
  11. Fabrizio Balassone & Daniele Franco, 2003. "Fiscal Federalism and the Stability and Growth Pact: A Difficult Union," Chapters, in: Economic Welfare, International Business and Global Institutional Change, chapter 6 Edward Elgar.
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