Maria Ambrosanio

Constitutional reforms, fiscal decentralization and regional fiscal flows in Italy

In the last 15 years, Italy has been involved in a complex, confuse and unfinished process of fiscal decentralization. In this context, data on fiscal flows are continuously produced and thrown in the political arena by several actors, political parties, interest groups and media alike, with little scientific underpinnings and often with limited adherence to reality. This paper discusses at length the issue of fiscal federalism in Italy and presents a careful attempt to measure regional redistribution, or fiscal flows across regions. It describes the decentralization process in Italy from the beginning of the ‘90’s to date and presents a few data on the main features of the Italian decentralization process, that only happened on the financing side, with little effects on the allocation of expenditure responsibility between levels of governments. The focus is however on the measurement of regional fiscal flows and on the problems concerning the regionalization of public expenditure and revenues. Our basic conclusions can be summarised as follows. Fiscal flows in Italy are huge and are mostly driven by the large difference in economic development between the different areas of the country. The public sector generally works in the direction of equalizing per capita (current) public expenditure across regions, at least for fundamental services. However, the distance in economic development, and therefore in tax revenues among regions, is so large that even this partial equalization is enough to generate consistent fiscal flows across the national territory. Clearly, fiscal federalism has some chances of success in Italy only if it works in the direction of reducing the distance between territorial areas and the Italian debate on fiscal federalism, rich in ideology and poor in facts, would certainly benefit by an improved quality of regional data and by official estimations, based on clear and transparent methodology, of regional fiscal flows.

Economic crisis and fiscal federalism in Italy

For almost two decades, starting from the early ‘90s, Italy experienced the strongest wave of decentralization reforms in its post II World War history. The causes were both economic and political. Yet, in recent years, again economic and political causes seem to call for opposite reforms. Along with a second wave of scandals, this time interesting local politicians, the crisis that has hit our country since 2008 is having relevant effects on the relationships between central and local governments. The aim of this paper is to assess dimension and direction of these effects. We first review the situation of “fiscal federalism” in Italy before the crisis, summarizing the decentralization process in the ‘90s, its consequences in terms of financing and functions for local governments, the constitutional reform of 2001 and the implementation problems this created. We then look at the numbers of the crisis; the “double dip” of the economic cycle in the period 2007- 2013, the policies implemented to contrast the financial market confidence crisis and the distribution of the burden of the fiscal consolidation across levels of government. We also discuss the institutional features of the implemented policies, in particular referring to number of local governments and to the financial relationships between level of governments, including taxes, transfers, fiscal rules and bankruptcy procedurals. Finally, we look at the future: what consequences will the new European rules, as enshrined in the new art. 81, have on the financial relationships between levels of government? And how is the balance of power between the center and the periphery going to change in lieu of the new proposed Constitutional reform?

Who should review public spending

Since the early ‘80s of the last century, Italy has experienced different waves of spending reviews. The ideal aim of these processes is (at least) twofold: efficiency, namely to reach public goals at a lower cost, and effectiveness, that is, to clearly state priorities of public activity. Has any of the different reviews in Italy ever been successful? Even taking into account the most recent experience, it would be hard to reply affirmatively. So what are the sources of this long series of failures? And why international experience, on the contrary, seems to reach its goals? To answer, we review international experience, scientific literature, and provide a detailed story of the different attempts of spending reviews in Italy. Our conclusions are that lack of political will and lack of economic competence among Italian bureaucracy are the most likely causes: and that the appointment of external technocrats is not the solution, particularly under illdefined mandates.