Redistribution in the Italian system of intergovernmental relations Conference “Fiscal decentralization: analyses and perspectives”, Milano, 4 July 2003 Giampaolo Arachi, University of Lecce and Econpubblica-Bocconi University Alberto Zanardi Università di Bologna e Econpubblica-Bocconi University

Interregional redistribution General aim: to analyze redistribution across regions accomplished in Italy by the different levels of government Italy is an interesting case since: –stark territorial differences (North-South dualism) –regional asymmetries undermines the support for centralized redistributive policies –during the ‘90 radical reforms toward a more decentralized setting of intergovernmental fiscal relations

Interregional redistribution Two different approaches: from the perspective of local governments: the focus is on the amount of resources trasferred among local governments in order to achieve a more equalized distribution financial analysis from the perspective of taxpayers: the focus is on the net amount of money actually paied/received by taxpayers resident in different jurisdictions incidence analysis

Financial analysis Reforms of Regional financing system during the ‘90s –assignment of new autonomous tax resources (Irap, surcharge on Irpef) (1998) –abolition of all existing conditional grants from the central government (2000) –introduction of a new system of interregional transfers based on clear equalizing criteria (fiscal capacity, equalization of health needs and differences in economies of scale) (2000)

Financial analysis

Incidence analysis Incidence analysis requires that central and local revenues and expenditures to be allocated across territorial jurisdiction according to their actual burdens and benefits regionalization rules

Incidence analysis (1) An estimate of actual interregional redistribution implemented by different layers of government (Treasury Department - Conti pubblici territoriali ) –Econometric estimate of the amount of interregional redistribution brought about by any given layer of government by regressing per capita regional GDP net of the fiscal residua on per capita regional gross GDP –Per capita fiscal residua = difference between public expenditure (net of public debt interests) and revenue net of all transfers from or to other levels of government

Incidence analysis (1)

Incidence analysis (2) An estimate of the impact of the reform of Regional financing system on interregional redistribution (Istat - Regional governments financial accounts ) Comparison between 3 different scenarios: – pre-reform scenario : represents regional budgets before the introduction of the two main innovations (Irap and equalizing transfers) – post-reform scenario : simulates regional budgets after the introduction of the two main innovations – historical scenario

Incidence analysis (2)