Do electoral rules and elections matter in expenditure fragmentation? Empirical evidence from Italian regions

The empirical literature shows that incumbent politicians move expenditure from one budget item to another before elections and under different electoral systems in order to capture voter consensus and gain re-election. However, little attention has been paid to measurement of the degree of spending items manipulation by incumbents in these circumstances. The aim of this paper is therefore to fill this gap by conducting an empirical investigation on a panel of Italian regions. Measuring the degree of spending items manipulation with the Hirschman-Herfindahl index of fragmentation, I find that total public expenditure is more fragmented when the regional electoral system moves from a proportional towards a mixed electoral system. In the panel dynamic analysis, the manipulation of regional spending items is on average 15%. Weak evidence is also found for more fragmented expenditure before regional elections. In this case, the manipulation is about 6-7%. I refine the analysis by considering only the fragmentation of current and capital expenditure. The results confirm that a shift towards a mixed electoral system produces more expenditure fragmentation in Italian regions. No robust evidence is found for expenditure concentration when regional elections are forthcoming.