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The Italian Way to Fiscal Federalism Carlo Buratti, University of Padua, Italy Financing Devolved Government: The Principles and Practicalities of Reform.

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Presentation on theme: "The Italian Way to Fiscal Federalism Carlo Buratti, University of Padua, Italy Financing Devolved Government: The Principles and Practicalities of Reform."— Presentation transcript:

1 The Italian Way to Fiscal Federalism Carlo Buratti, University of Padua, Italy Financing Devolved Government: The Principles and Practicalities of Reform Cardiff, 21 January 2011

2 A caveat Four months before the dead line set by the delegation law n. 42/2009 the structure of fiscal federalism in Italy is still largely undefined. Only 3 decrees out of 7 or more decrees necessary to implement the delegation law have been issued. Further draft decrees now under examination by Parliament and Regional and Local Governments raise great discontent. There is a lack of data on the effects of the reform.

3 A caveat Therefore I am forced to deals more with politics then with economics. I will try to explain what is really going on, which diverges somewhat (and sometimes sharply) from official declarations. It is useful to start from the last decade.

4 The claim for federalism Italian Regions differ widely in income, employment, social behaviour, administrative skills of regional and local governments, efficiency of public bodies, quality of public services, etc. For decades the Northern regions have been the locomotive which pulls the train of slow-growth regions, mainly located in the South of the country. Tab. 1 shows the fiscal residua of Italian regions in 1996-2002, i.e. the differences between tax paid by each region and public expenditure in the same region, net of interest payments on public debt (pure territorial criterion; per capita data). 6 regions out of 20 have a positive residuum, i.e they pay taxes higher than public expenditure they receive. The resource transfer is huge.

5 Tab. 1- Fiscal residua (1996-2002) euros percapita. Tax payments – Expenditures net of interest payments* Piemonte Valle dAosta Lombardia Veneto Trentino-Alto Adige Friuli V.G. Liguria Emilia Romagna Toscana Umbria Marche Lazio Abruzzo Molise Campania Puglia Basilicata Calabria Sicilia Sardegna 2.286 -3.456 5.095 3.095 -558 311 - 862 3.277 1.111 -602 844 -206 -616 -2.429 -1.575 -1.469 -2.745 -3.191 -2.360 -2.642 * Based on CPT expenditure data Ministry of Econ. Dev

6 Tab. 2 - Fiscal residua. Comparison of 2 estimates ( euros percapita). Different methodologies to impute revenues and expenditures to regions give different residua, but the main results do not change. Tab. 2 compares two different approaches: pure territorial criterion (column 1 and tab. 1) and a mix of territorial and benfit criteria (column 2). Only 1 region (Lazio) shifts from losers to gainers, following the application of the percapita distribution to genaral administration expenditures. Regions Territorial criterion 1996- 2002 Territorial and benefit Criteria 2004-06 Piemonte Valle dAosta Lombardia Veneto Trentino-Alto Adige Friuli V.G. Liguria Emilia Romagna Toscana Umbria Marche Lazio Abruzzo Molise Campania Puglia Basilicata Calabria Sicilia Sardegna (1) 2.286 -3.456 5.095 3.095 -558 311 - 862 3.277 1.111 -602 844 -206 -616 -2.429 -1.575 -1.469 -2.745 -3.191 -2.360 -2.642 (2) 1.370 -3.595 4.601 2.179 -1.435 109 -914 2.516 1.105 -1.517 363 2.470 -1.173 -3.657 -2.376 -2.294 -3.953 -4.079 -3.013 -2.936 (1) CPT; (2) Staderini, Vadalà (2009)

7 The claim for federalism The Bank of Italy estimates that the transfer of resources towards Southern Regions amounts to 13% of GDP of the same regions or to 3% of national GDP. Tables 1 and 2 show per capita data, so they gives no immediate idea of the size orf the resource transfer betweeen Regions. Table 3 shows estimates (Ricolfi 2010) of the fiscal residua excluding interests, pensions (financed by social contributes), military expenditures and sales of services (data in million euros). Lombardy contributes to 50% of total transfer to less developed regions. The share of Lombardy, Veneto and Emilia-Romagna reaches 85%.

8 Tab. 3 - Fiscal residua (2006) millions euros. Tax payments - net expenditures* Piemonte Valle dAosta Lombardia Veneto Trentino-Alto Adige Friuli V.G. Liguria Emilia Romagna Toscana Umbria Marche Lazio Abruzzo Molise Campania Puglia Basilicata Calabria Sicilia Sardegna 4.708 -474 24.892 8.759 -876 -62 -6 7.994 2.371 -728 726 -3.523 -1.278 -763 -10.840 -6.698 -1.335 -4.757 -13.876 -4235 * Expenditures net of interests, pensions, defence expenditures and sales

9 The claim for federalism The increased economic competition due to globalization is generating problems even in the most developed Regions. The rate of growth is declining even in the more developed Northern Regions. Thus the latter ones claim more resources for themselves both for a matter of equity and to sustain growth, with a general advantage for the whole Country. This is the starting point of the federalizing process in Italy. Further developments do not meet claims of the Northern regions and are turning the federalist reform in something else.

10 The 2001 Constitutional reform – art. 117 The 2001 reform re-writes art. 117 of Constitution, which sets the roles of the State and Regions. Regions get all the functions not specifically reserved to the State or shared by State and Regions. Full implementation of art. 117 Const. will imply a huge devolution of functions and resources to Regions. ISAE (2004) estimates in 61,000 million Euros, i.e. 5% of GDP, the cost of additional functions to be devolved to Regions. Further round of devolution has occurred in last decades. However art. 117 Const. has not been implemented so far, nor will be implemented in the next future.

11 The 2001 Constitutional reform – art. 117 Implementation of the revised version of art. 117 Const. would imply a large fiscal equalization fund, since most of the devolved expenditure relies to Southern Regions while devolvable tax revenues are concentrated in the North.

12 The 2001 Constitutional reform – art. 116 Art. 116 Cost. confirms the wider functions and the specific financial arrangements of 5 autonomous Regions and 2 autonomous Provinces, most of them created by the 1948 Constitution or by a previous Act (Sicily got the special statute in 1946). Art. 116-3 allows all other Regions to get more functions reducing the scope for State policies on their territories. The 2001 Constitution, thus, like the Spanish Constitution, allows for asymmetric federalism. Two Regions (Lombardy and Veneto) have submitted to Parliamnet in the last legislature two bills for getting wider functions and more resources. The same bills were re-presented in the present legislature. However the bills have not been discussed in the Parliament. Seemingly, there is no political will to implement art. 116-3 Const.

13 Autonomous Regions and Provinces Valle dAosta Trentino - Alto Adige* Friuli - Venezia Giulia Sicilia Sardegna *split into 2 Autonomous Provinces (Trento and Bolzano) Puglia Bolzano

14 The 2001 Constitutional reform – art. 119 The 2001 constitutional reform radically changed art. 119 which sets the principles which must inform regions and local governments finances. The re-written art. 119 suppresses all central grants to both Regions and Local Governments apart from the fiscal equalization fund and specific grants to single sub-national governments to prompt economic development, cohesion and social solidarity, remove social and economic differences, make effective all personal rights, or to cope with tasks different from normal functions. The Constitution warrants the integral financing of essential (minimum?) and fundamental levels of service respectively for regions and local governments.

15 The implementation of art. 119 Cost. The delegation law 42/2009 Art. 119 is the only part of the 2001 constitutional reform being implemented. Delegation law 42/2009 Then a number of government decrees have been issued or are being issued to implement the delegation. All the decrees must be issued by may 2011, but strong opposition to some parts of the decrees is slowing down the issueing of the decrees themselves. Also, a political game is now being played around fiscal federalism, involving the sort of the Government. Therefore, one cannot easily forecast the final outcome of the federalist reform (I will discuss this topic later).

16 The implementation of art. 119 Cost. – The delegation law 42/2009 Act 42/2009 exacerbates some prescriptions of the constitutional legislator with unsatisfactory results. Act 42/2009 extends the label of essential services (of regions) and of fundamental services (of local governments) to broadly 80% of their respective budgets. Since tax revenues are fully equalized with respect to need both for essential and fundamental services, the equalization fund will be large and many regional and local governments will still get a large share of their revenues from State grants (though their amounts will be defined in a more rational way than now). Accountability will be reduced by large grants from the fiscal equalization fund.

17 The implementation of art. 119 Cost. – The delegation law 42/2009 To increase accountability, essential and fundamental services will be fully financed according to standard costs (for regions) and standard expenditure, i.e. need (for local governments). A complex system of measures to drive regional and local governments to efficiency is drawn by law 42/2009. The central Government sets the levels of service for all main services, and their standard costs and standard expenditures and periodically checks the real levels of service and real costs and expenditures for each sub-national government. Tough sanctions are introduced to enforce efficiency rules. Sanction are committed to the administration which do not meet the Internal Stability Pact targets as well as to the one which do not supply the standard level of essential services or greatly exceed standard costs or standard expenditure.

18 The implementation of art. 119 Cost. – The delegation law 42/2009 When the inefficiency are great, sanctions are extended to administrators who may not be re-elected and appointed in public bodies.

19 Inconsistency and paradoxes The way to fiscal federalism in Italy is a good example of a bizanthine policy where everything and its opposite cohexist with no scandal of anybody apart from a few scholars who still beleive that legislation should have internal consistency.

20 Inconsistency and paradoxes Paradox n.° 1 After the 2001 constitutional reform the Government policy has consisted in limiting regional and local governments autonomy. Official justification was waiting for fiscal federalism…. Since 2003 (with the exception of 2007 and the first 5 months 2008) the local and regional surtaxes on personal income tax has been locked (no increase in tax rates was allowed). Also the increase of rates of the regional tax on business activities (IRAP) was forbidden since 2003, apart from Regions having Health Service deficits. Since may 2008 rates of all taxes devolved to municipalities were locked (apart the tax on refuse collection and disposal).

21 Inconsistency and paradoxes In 2007 the municipal property tax on houses directly occupied by owners was gretaly reduced by law by the left wing Parliamentary majority. In 2008 the right wing Parliamentary majority exempted houses occupied by their owners from the municipal property tax. Occasionally, as a matter of industrial and environmental policy the national law exempts any subject buying a new car from the payment of the registration tax due to Provinces. The provincial budget is restored (later) by State grants. As a consequence of the quoted policies, fiscal autonomy of Local Governments (especially Municipalities) fell dramatically. For Municipalities the index of fiscal autonomy was 50,3% in 2003, only 36,8% in 2008.

22 Inconsistency and paradoxes The Internal Stability Pact has repeatedly imposed very tight limits to Local Governments expenditures, including limits to specific expenditures (for salaries, consultancies, travels, etc.) The Consitutional Court repeatedly condemned the limits imposed to specific expenditures, but the Government attitude towards Local Government has not changed. Also, Regions with large Health Service deficits were forced to rise tax rates to the top and to implement rationalization plans – In this case, justifiable measures, as they were necessary to internalize the huge spillovers of some Regions mis-behaviour.

23 Inconsistency and paradoxes Since turning Italy in a federal (or quasi-federal) State became an accepted target, the central policy as to Regions and Local Governments has been to reduce their expenditures (and inefficiency). This purpose was pursued by reducing autonomy.

24 Inconsistency and paradoxes Paradox n.° 2 The delegation law n. 42/2009 designes a very solidaristic type of federalism, which aims to provide the same level of service for all main regional and local functions all over the country. The target of equal levels of service in all regions has been repeatedly stated by both left-wing and right-wing ministers and political leaders Thus, the federalizing process is expected to produce greater equality in public services while the present insitutional asset (which reserves wide powers to the State) failed to get it!!! Accent on uniformity will prevent gains from institutional competition.

25 Inconsistency and paradoxes Paradox n° 3 Art. 119 Const. and Act. 42/2009 design a very co-operative federalism, but art. 116-3 Const. allows for wide differences allowing regions to ask for a wider set of functions and greater resources. Two different models of federalism co-exist. Further paradoxes and inconsistency may be found in the Government decrees for the implementation of the delegation law.

26 Inconsistency and paradoxes Inconsistency and paradoxes are partially the result of bargaining between Government, political parties, regional and local Governments. Bargaining accompanied the 2001 constitutional reform, the drafting of delegation law 42/2009 and are accompanying the drafting of decrees on fiscal federalism. The leading financial newspaper Sole-24 ore (12 January 2011) commented the last developments on fiscal federalism as follows: In Italy we never do anything serious because we do not want to discontent anybody. Every good project becomes object of bargaining: we smooth it, we retouch it, we change it, so that everybody will find in it something he likes; no matter if the project does not stand any longer… No matter if the mountain generated a mouce And concludes: Is it really worthwhile ?

27 The Government decrees Implementation of the delegation law 42/2009 In the following slides I report the contents of Governments decrees and draft decrees, warning that the latter ones are changing almost day by day.

28 Additional Regional tax revenue All State grants must be suppresed, apart from fiscal equalization grants and specific grants to single regional authorities according to art. 119-5 Const. The Joint Commssion supporting the Government in the implementation of the delegation law estimates grants to be suppressed in 7.485 million euros including autonomous regions. The figure excludes 5.449 million euros of State grants to the (regional) Health Service and other grants by questionable reasons. Anyway small figures as compared with total budget 250.000 million euros. The exact amount of State transfers to be suppressed has not yet been agreed between State and Regions.Thus the amount of additional regional tax revenue (including tax sharing) is still undefined.

29 Current revenues of 15 ordinary Regions - 2008 (Autonomous Regions and Provinces are not considered) millions of euro and % distribution Irap (Tax on business) Surtax on Income tax Motor taxes Other own taxes and surtaxes Total own taxes and surtaxes (1) Tax sharing of VAT Other tax sharing Total tax sharing revenue (2) Total (1) + (2) Grants from State, EU, others (for curernt expenditures only) Sales etc. 34.184 6.998 5.171 1.723 48.076 46.358 3.258 49.616 97.692 16.737 2.202 71,1% 14,6% 10,8% 3,6% 100,0% 93,4% 6,6% 100,0% 49,2% 50,8% 100,0%

30 The Government decrees. Regional taxes The tax system of Regions will not substantially change. Regions maintain most of the present sources of revenue (though their structures are modified): - IRAP (a tax on business); - A surtax on the personal income tax; - Revenue sharing of VAT; - A series of benefit taxes. Regions lose revenue sharing of the excise on fuel (gasoline) Regional benefit taxes become optional;

31 The Government decrees. Regional taxes Regions get greater powers on setting rates, deductions and exemptions of the businsess tax (IRAP); The surtax on the personal income tax will give a much higher revenue, as it will substitute for the revenue sharing of the fuel tax and for State grants abolished. Regions get the power of modifying rates and deductions of the surtax; Regional shares of VAT are redefined to make them closer to the effective burden on local consumers. Substantially a good reform which grants more fiscal autonomy to Regions with some useless complication.

32 Regional taxes IRAP (business tax) Now Taxable base = salaries, interests on loans etc., profits Rate = 3, 9% on business activities; higher rate for banks; reduced rate for agriculture (1,9%); 8,5% on civil servant wages Regions may vary the standard rate up to +0,92% (No longer after 2008) Deduction proportional to the number of workers. Further deductions for new employees. Regions may decide further deductions for specific business or purposes. After the reform Regions may reduce the standard rate to zero to support development. No State grants to cover the missing revenue. No rate reduction if surtax on the personal income tax is above 0.5% Projects to substitute IRAP with other revenues.

33 Regional taxes Surtax on the Personal income tax Now Basic rate (compulsory): 0.9% Regions may increase the surtax up to 1.4% Some Regions have introduced progressive surtaxes After the reform Higher basic rate still to be defined (1.5% or more) Regions may increase the basic surtax rate by 2.1% since 2015 (1.1% in 2014, 0.5% in 2013). On the first 2 income brackets max + 0,5%. The surtax may be progressive but income brackets are the same of the State income tax Regions may introduce tax benefits for families and for social services bought on the market Still far away from the Income Tax of the Spanish Comunidades Autonomas

34 The Government decrees. Local Governments taxes Provinces Provinces get, and will get after the reform, most of their revenue from motor taxation. The Government decree increases the flexibility of motor taxes. Provinces will be allowed to change the rate of the tax on car insurance +2.5%, till now a pure devolution of revenue (fixed rate 12.5%). Provinces get also a share of the State income tax (instead of the excise on fuel as in a previosus draft of the decree). They lose the surtax on the excise on electric energy consumption. Provinces as well as Regions get more tax flexibility, i.e. a greater power to define the structures of their revenues.

35 Current revenues of Provinces (excluded Trento, Bolzano and Provinces of region Fiuli V.G.) - 2008 millions of euro and % distribution Tax on car insurance Tax on registration of motorvehicles Surtax on electric energy excise Other taxes Total tax revenue State grants Other grants (from regions, EU, etc.) Total current grants Sales, income from real property, profits Total current revenue 2.041 1.184 909 712 4.846 1.021 3.227 4.248 747 9.841 42,1% 24,4% 18,8% 14,7% 100,0% 24,0% 76% 100,0% 49,2% 43,2% 7,6% 100,0%

36 Additional municipal taxes State grants to be cancelled and subsituted with local taxes and tax sharing. About 13.000 million euros (municipalities in ordinaryRegions). Total municipal budget 75.266 million euros. Immediate substitution of taxes for grants only for Municipalities located in ordinary Regions. For Autonomous Regions and Provinces negotiated procedure. Autonomous Regions and Provinces but Sicily and Sardegna are resposible for local public finance and finance directly their local governments. Regional grants to municipalities must be suppressed as well. They amount to 6.313 million euros for ordinary Regions and to 3.894 million euros for Autonomous Regions and Provinces as against total budgets equal to respectively 75.266 and 15.989 million euros. A cospicuous amount but some regional grants are financed by State grants which are redistributed to Local Governments by Regions – possible double counting.

37 Additional municipal taxes In the following slides I will deal with substitution of State grants only. Regional grants to Local Governments must be substituted with regional tax sharing and/or new local taxes introduced by regional legislation.

38 Municipalities (all regions) Municipal current revenues and detail of main tax revenues 2008 - milllion of euros and % values Property tax Surtax on Income tax Tax on refuse collection and disposal Surtax on the excise on electric energy Other taxes Total Tax revenue State Grants Regional grants Other grants Total current grants Sales of public services Other own revenues Total revenues for sales etc. Total current revenues 9.789 2.797 4.728 707 2.405 20.426 15.005 5.868 835 21.708 6.158 7.871 14.029 56.163 47,9% 13,7% 23,1% 3,5% 11,8% 100,0%36,4% 38,6% 25,0% 100,0%

39 The Government decrees. Local Governments taxes Municipalities The draft decree now under examination by the Parliamentary Commission on Fiscal Federalism deeply reforms municipal finances. Revenues are mainly based on the taxation of real estates and of house rents. Municipalities maintain the current property tax on buildings (which exempts houses occupied by owners) with minor changes and a different name; now rates between 0.4% and 0.7%. Reduced rates and higher rates for incentives purposes. Basic rates after reform still unknown, but Municipalities may vary them up to 0,3% They also get taxes on transactions of real properties (so far State taxes); rates 2%-8%. Municipalities may change the standard rate 8% up to + 2%.

40 The Government decrees. Local Governments taxes They may cancel a number of benefit taxes (first of all the tax for refuse collection and disposal) and levy a new (optional) tax which encompasses them. All the quoted new revenues are formally a unique tax called IMU (municipal tax). Municipalities get also a flat rate tax on real incomes from rented houses which substitute for the State income tax and some minor taxes on rent contracts. A low rate (20%) should reduce tax evasion on house rents, which is presently very high.

41 The Government decrees. Local Governments taxes Paradox n.° 4 While a main target of the on going reform is to increase accountability of local governments, the proposed tax system of municipalities gets the opposite result. The property tax exepmts those who live in their own houses (75% of all citizens). The tax burden is on tax payers which do not vote in the jurisdiction. The tax on real estate transanctions are paid by citizens once or twice in their life. Somebody will never pays the tax. The tax on house rents will be paid by a restricted number of citizens.

42 The Government decrees. Local Governments taxes The proposed tax system for municipalities yields a very uneven distribution of income which greatly advantages the main cities and the holiday resorts. It also gives very unstable revenues in small towns, where real estate transactions are sporadic. Inclusion of the charge for refuse collection and disposal in the Unique municipal tax (IMU) will reduce accountability and contrasts with the environmental policy. The proposed municipal tax system is presently subject to strong criticism by the Parliamentary Commission on fiscal federalism. Substitution of IMU with a Service Tax appliable also to houses occupied by owners has been proposed by the main left wing party (the Democratic Party).

43 The Government decrees. Local Governments taxes A first simulation of the effects of the proposed new taxes on Municipalities revenues shows wide deviations from present revenues from State grants (Source: Sen. M. Stradiotto). Revenues will be equalized and the equalization fund will be large. Municipality % Deviation from present revenues (grants) Torino Imperia Genova Firenze Roma Olbia Milano Venezia Padova Parma Bologna LAquila Potenza Napoli Palermo Catanzaro -9 +122 -22 +33 -10 +180 +34 +26 +76 +105 +40 -66 -56 -61 -55 -46

44 The Government decrees. Local Governments taxes Pressed by the Municipalities and by political opposition, the Government on January 18 has submitted to the Parliamentary Commission a new proposal: Taxes on transactions of real estate remain state revenues. Municipalities get a share of the same revenue (1,000 million euros) Municipalities also get a share of the income tax (4,000 euros). The tax on house rents becomes a State revenue entirely devolved to Municipalities. Should the revenue be lower than forecast, the Government will cover the gap. A solution which improves some features of the draft decree but worsen others. Tax sharing becomes prevalent and accountability becomes a chimera.

45 The Government decrees. Standard costs, standard expenditures and resource equalization Regions essential levels of service and local governments standard expenditures (need) have not yet been quantified. Indeed, what does mean essential service has not yet been specified, apart from health service where they have been roughly set by the Government some years ago. A provisional list of local governments fundamental services has been drawn by the delegation law. The implementation of the complex architecture of Act. 42/2009 is encountering great obstacles. For the time being the Government is focusing on standard costs and expenditures ignoring essential levels of service.

46 The Government decrees. Regions Standard costs and resource equalization A draft decree sets the way to measure standard costs of Regions essential services. For each essential service standard cost is assumed as the weighted average of per capita costs in 3 Regions (1 of which must be in the Northern Italy, 1 in Central Italy, 1 in the South; moreover 1 Region must be a small one). The 3 Regions are selected by the Conference of Regions (a co-ordination body) out of 5 Regions which meet some specific efficiency criteria. The conditions set by the draft decree are inefficient since they can define an empty set. The Government proposed considering the 3 most effcient Regions. Regions prefer to expand the number of reference Regions and to introduce conditions which lowers the target.

47 The Government decrees. Regions Standard costs and resource equalization The lower the target the easier is to get it for inefficient Governments and the greater the financial premium for the most efficient ones. Regions will get resources which equal standard costs of essential services. Thus, if the standard is set as the average of the 3 most efficient regions, only 1 (Lombardy) will get more resources than now. All other ones lose resources. Benefits of cost cuts accrue to the Treasury. Thus the real Government target is to spoil Regions of excessive reosurces, not to redistribute resources from inefficient governments to efficient ones; i.e. fiscal federalism is a way to carry on the last decade policy as to sub-national governments.

48 The Government decrees. Regions Standard costs and resource equalization Regions are bargaining to get softer targets. This is in the interest of both the rich northern regions (generally efficient ones) and of the poor southern regions (generally inefficient ones). * According to the delegation law, resource equalization for non- essential services means pure fiscal capacity equalization plus a corrective factor to take account of small dimensions. This point has not yet been tackled by Government decrees.

49 The Government decrees Local Governments Standard expenditures and resource equalization The delegation law sets a criterion for resource equalization for fundamental services which much resembles international experiences. The equalization fund fills the gap between need (estimated with the usual statistical tools) and standard revenue. The equalization fund is financed by Local governments having standard revenues above need (a pure redistribution between rich and poor administrations). A very lose interpretation of the delegation by the Government has lead to a different and innovative way of estimating need, based on cluster analysis – a methodology used by the financial administration to estimate normal incomes for small business and professionals.

50 The Government decrees Local Governments Standard expenditures and resource equalization Estimated need will take account of the usual socio-economic, territorial, demographic and economic factors, but also of other factors (number of employees, quality of services, efficiency and effectiveness in the supplying of public services) which will reduce deviations of real expenditures from estimated need. Every 3 years estimated need for 1/3 of total expenditure are re- estimated in such a way that estimates become closer and closer to efficient expenditure for all fundamental services (in a non-specified number of years).

51 The Government decrees Local Governments Standard expenditures and resource equalization This methodology has some shortcomings: Yardstick competition is not allowed (there is no common target for Local Governments); There is no guarantee that surpluses of standard revenues over need in the rich Regions will equal deficits in the poor regions; Since Local Governments receive an amount of resources equal to need, the closer estimated need is to the efficiency expenditure the more the Central Government gains from efficiency increases.

52 The Government decrees Local Governments Standard expenditures and resource equalization Thus, while the delegation law leads to a redistribution of resources within Local Authorities, the Government decree shifts resources from Local Governments to Central Government.

53 A good reform? The judgment on the reform is straightforward if the following points are considered. Fiscal autonomy is somewhat increased, but The overall autonomy of Regions and, above all, Local Governments will be subject to severe constraints Accountability do not rely on a wide fiscal autonomy, maximum transparency of the local fiscal system, a no bail out clause and control by the citizens/electors Accountability relies upon a set of (severe) sanctions and (small) prizes Gains from reducing present costs to standard costs will accrue to Central Government! Regions and Local Governments will get tiny benefits from their efforts to increase efficiency.

54 A good reform? The main target of the reform is to reduce inefficiency and the level of expenditure of both Regions and Local Governments in order to reduce pressure on the central budget. Many rules introduced by Act. 42/2009 and by the Government decrees would fit well in a decetralization context. They are less coherent with a federalist structure of the State. The reform does not meet the claims of the more developed Northern Regions. They expect from federalism a greater share of the tax yield and greater powers to manage public functions. Neither target is achieved.

55 The Italian Way to Fiscal Federalism Thanks for your attention

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