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The determinants of the financial distress of Italian municipalities: How much is it due to inadequate resources?

Author

Listed:
  • Emanuele Padovani

    (University of Bologna)

  • Francesco Porcelli

    (University of Bari)

  • Alberto Zanardi

    (University of Bologna)

Abstract

The key question addressed in this work is whether financial distress recently experienced by several Italian municipalities can be at least partially imputed to the inadequacy of the financial resources they suffer compared to the needs of their populations and their territories. Starting from a multidimensional definition of financial distress, we investigate this issue by exploiting the variability across municipalities revealed by two different occurrences recently involving the intergovernmental fiscal relations in Italy: on the one hand, the large cuts in vertical transfers carried out by the central government as part of the fiscal consolidation strategy in the period 2014–2015 which affected single municipalities to varying degrees; and, on the other hand, the introduction of a new mechanism of equalization transfers at municipal level which showed how the gap between available financial resources to local needs is differentiated across municipalities. Exploiting these sources of variability across local authorities, the estimation results show that the Italian municipalities which suffer a level of resources lower than that necessary to provide public services at a standard level are, ceteris paribus, more likely to run into financial difficulties. By the same token, large cuts in central government transfers have a statistically significant effect on financial vulnerability at municipal level.

Suggested Citation

  • Emanuele Padovani & Francesco Porcelli & Alberto Zanardi, 2024. "The determinants of the financial distress of Italian municipalities: How much is it due to inadequate resources?," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 31(6), pages 1494-1533, December.
    • Handle: RePEc:kap:itaxpf:v:31:y:2024:i:6:d:10.1007_s10797-024-09856-7
    DOI: 10.1007/s10797-024-09856-7
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    More about this item

    Keywords

    Financial distress; Resources inadequacy; Local government; Italy;
    All these keywords.

    JEL classification:

    • H70 - Public Economics - - State and Local Government; Intergovernmental Relations - - - General
    • H72 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Budget and Expenditures
    • H77 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Intergovernmental Relations; Federalism

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