On a large dataset of Italian municipalities for the period 2003–2014, we investigate unexplored effects of fiscal consolidation in decentralized public finance. Based on a simple, realistic theoretical model, we show that municipalities increase arrears on committed public investment expenditure as a response to intergovernmental transfer cuts. Then, we test our predictions controlling for potential sources of endogeneity, and find that a reduction in central government transfers causes a significant increase in arrears, besides other usual adjustments to local fiscal policy (e.g., tax revenues). Our results highlight a perverse effect of fiscal consolidation packages implemented by centrally imposed fiscal restraints.

Fiscal consolidation by intergovernmental transfers cuts? The unpleasant effect on expenditure arrears

CHIADES, PAOLO;Luciano Greco;Luigi Moretti;Paola Valbonesi
2019

Abstract

On a large dataset of Italian municipalities for the period 2003–2014, we investigate unexplored effects of fiscal consolidation in decentralized public finance. Based on a simple, realistic theoretical model, we show that municipalities increase arrears on committed public investment expenditure as a response to intergovernmental transfer cuts. Then, we test our predictions controlling for potential sources of endogeneity, and find that a reduction in central government transfers causes a significant increase in arrears, besides other usual adjustments to local fiscal policy (e.g., tax revenues). Our results highlight a perverse effect of fiscal consolidation packages implemented by centrally imposed fiscal restraints.
File in questo prodotto:
File Dimensione Formato  
Econ_ModellingCGMMV2018.pdf

Open Access dal 01/04/2022

Descrizione: articolo principale
Tipologia: Postprint (accepted version)
Licenza: Accesso gratuito
Dimensione 897.07 kB
Formato Adobe PDF
897.07 kB Adobe PDF Visualizza/Apri
Pubblicazioni consigliate

I documenti in IRIS sono protetti da copyright e tutti i diritti sono riservati, salvo diversa indicazione.

Utilizza questo identificativo per citare o creare un link a questo documento: https://hdl.handle.net/11577/3277250
Citazioni
  • ???jsp.display-item.citation.pmc??? ND
  • Scopus 5
  • ???jsp.display-item.citation.isi??? 4
social impact