Legislative interventions for the Italian local public financial distress

From 1989 until 2018, almost 600 Italian municipalities experienced financial distress. The aim of the present study is i) to investigate the historical and geographical evolution of this bankruptcy procedure over thirty years; ii) to test if the exogenous Italian legislation on local administration defaults was influencing the dynamics of the local financial distress phenomenon by identifying three different regulatory regimes; iii) to understand whether those legislative interventions were more likely to be designed as a rectification procedure with immediate effects rather than a structural reform tool with delayed but potentially more foresight-informed policy consequences. Our results show that the regulatory regime until 2001 which had foreseen the government bail-out of the local defaults encouraged municipalities to use the bankruptcy procedures, unlike from 2002 when the legislative interventions have been updated there is no longer any incentive. Moreover, the distribution of local financial distresses has a strong geographical dimension and confirms the North-South divide. Finally, they had mainly a rectification effect on the short term which determined that the phenomenon of local defaults still requires to be fully addressed and regulated with several bureaucracy and opportunity costs.