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Fiscal federalism, regional public investment and spatial interaction processes: the case of Italy

  • Giuseppe Di Giacomo

    ()

  • Fabio Mazzola

The aim of this paper is to examine interregional interactions in public expenditure (for NUTS I and NUTS II level regions) using a new database on Italian Regional Public Accounts (RPA) over the period 1996-2007. Intergovernmental interactions are particularly important for assessing the impact of the reform towards fiscal federalism which is currently under way in Italy. As pointed out by Salmon (1987,2002), a more decentralized system implies that governments situated at the same level in a multi-level governmental system compete each other as well as with those located along the hierarchy. Competitive behavior is also a key element in many recent models of local government behavior (Brueckner, 1997, 2000) and is now the focus of a growing empirical literature based on strategic interaction in local policy decisions analyzed through the estimation of a reaction function (Millimet, 2002; Revelli, 2003). The paper provides empirical evidence on complementary/competitive relationships in terms of capital public expenditure using the approach originally developed by Dendrinos and Sonis (1988, 1990). This model has been applied to income variables in several papers (Hewings et al. 1996, Magalhaes et al.1999, Dall’erba et al., 2003) but the use of policy variables has not been explored yet. By investigating the occurrence of competitive versus complementary interactions in regional public expenditure, the paper suggests that the definition of a fiscal federalism scheme should take into account adequately both direct and indirect effects.

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File URL: http://www-sre.wu.ac.at/ersa/ersaconfs/ersa10/ERSA2010finalpaper637.pdf
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Paper provided by European Regional Science Association in its series ERSA conference papers with number ersa10p637.

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Date of creation: Sep 2011
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Handle: RePEc:wiw:wiwrsa:ersa10p637
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  1. Hamid Davoodi & Heng-fu Zou, 1996. "Fiscal Decentralization and Economic Growth: A Cross-Country Study," CEMA Working Papers 98, China Economics and Management Academy, Central University of Finance and Economics.
  2. Sandy Dall'erba & Marco Percoco, 2003. "North-south disparities, complementarity and competition within Italy," SCIENZE REGIONALI, FrancoAngeli Editore, vol. 2003(2).
  3. Maria Balaguer-Coll & Diego Prior & Emili Tortosa-Ausina, 2010. "Decentralization and efficiency of local government," The Annals of Regional Science, Springer, vol. 45(3), pages 571-601, December.
  4. Fredriksson, Per G. & Millimet, Daniel L., 2002. "Strategic Interaction and the Determination of Environmental Policy across U.S. States," Journal of Urban Economics, Elsevier, vol. 51(1), pages 101-122, January.
  5. Wallace E. Oates, 1999. "An Essay on Fiscal Federalism," Journal of Economic Literature, American Economic Association, vol. 37(3), pages 1120-1149, September.
  6. Brueckner, Jan K., 1998. "Testing for Strategic Interaction Among Local Governments: The Case of Growth Controls," Journal of Urban Economics, Elsevier, vol. 44(3), pages 438-467, November.
  7. Bordignon, Massimo & Cerniglia, Floriana & Revelli, Federico, 2003. "In search of yardstick competition: a spatial analysis of Italian municipality property tax setting," Journal of Urban Economics, Elsevier, vol. 54(2), pages 199-217, September.
  8. Iimi, Atsushi, 2005. "Decentralization and economic growth revisited: an empirical note," Journal of Urban Economics, Elsevier, vol. 57(3), pages 449-461, May.
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