Regional Redistribution and Risk Sharing in Italy: The Role of Different Tiers of Government

Abstract

Arachi G., Ferrario C. and Zanardi A. Regional redistribution and risk sharing in Italy: the role of different tiers of government, Regional Studies. This paper provides estimates of the redistribution and risk sharing across regional jurisdictions accomplished by the public sector in Italy. In this analysis the multi-level structure of the Italian government and the financial relations which link the different tiers of government are explicitly considered. Using panel data for the period 1996–2002, it is found that public policies in Italy significantly reduce differences in per-capita gross domestic product across regions. However, the public budget, far from providing insurance against idiosyncratic shocks, greatly emphasizes income fluctuations across regions.

Arachi G., Ferrario C. et Zanardi A. La redistribution régionale et le partage des risques en Italie: le rôle des divers niveaux d'administration, Regional Studies. Cet article cherche à fournir des estimations de la redistribution et du partage des risques à travers des circonscriptions d'action régionale et réalisés par le secteur public italien. Cette analyse approfondit la structure à niveaux multiples de l'administration italienne et examine ouvertement les rapports financiers qui relient les divers niveaux d'administration. A partir des données provenant des enquêtes permanentes pour la période de 1996 à 2002, il s'avère que les politiques publiques en Italie réduisent sensiblement les écarts du PIB régional par tête. Cependant, les dépenses publiques, loin de fournir une protection contre des chocs particuliers, soulignent les fluctuations du revenu à travers les régions.

Politique fiscale Redistribution Partage des risques Rapports entre les niveaux d'administration Régions

Arachi G., Ferrario C. und Zanardi A. Regionale Umverteilung und Risikoteilung in Italien: die Rolle der verschiedenen Regierungsebenen, Regional Studies. In diesem Beitrag schätzen wir das Ausmaß der Umverteilung und Risikoteilung zwischen verschiedenen regionalen Rechtsprechungsgebieten des öffentlichen Sektors in Italien. Ausdrücklich in der Analyse berücksichtigt werden die mehrschichtige Struktur der italienischen Regierung sowie die finanziellen Beziehungen, die die verschiedenen Regierungsebenen miteinander verbinden. Anhand von Paneldaten für den Zeitraum von 1996 bis 2002 stellen wir fest, dass die öffentlichen Politiken in Italien die Unterschiede des Pro-Kopf-BIP zwischen den Regionen signifikant verringern. Im öffentlichen Haushalt werden die Einkommensfluktuationen innerhalb der Regionen jedoch stark betont, statt eine Absicherung gegen idiosynkratische Störungen zu gewährleisten.

Steuerpolitik Umverteilung Risikoteilung Beziehungen zwischen Regierungen Regionen

Arachi G., Ferrario C. y Zanardi A. Redistribución regional y riesgo compartido en Italia: el rol de los diferentes niveles de gobierno, Regional Studies. En este artículo ofrecemos las estimaciones de la redistribución y el riesgo compartido en varias jurisdicciones regionales del sector público en Italia. En este análisis se consideran expresamente la estructura multinivel del gobierno italiano y las relaciones financieras vinculadas a los diferentes estratos de gobierno. Con ayuda de datos de panel para el periodo 1996–2002 observamos que las políticas públicas en Italia reducen considerablemente las diferencias entre los niveles del PIB per cápita en las regiones. Sin embargo, en el presupuesto público, lejos de ofrecer un seguro contra los choques idiosincrásicos, se acentúan en gran medida las fluctuaciones de ingresos en las regiones.

Política fiscal Redistribución Riesgo compartido Relaciones intergubernamentales Regiones

Keywords:

• Fiscal policy
• Redistribution
• Risk sharing
• Inter-governmental relations
• Regions

JEL classifications:

• E62
• H23
• H50
• H70

Acknowledgements

The authors thank the Italian Ministry of Economy – Department for Development Policies – for providing the data set. They are also grateful to Thiess Buettner, Fabio Padovano, Federico Revelli, and two anonymous referees of this journal for helpful comments and suggestions. Financial support by the Italian Ministry of University and Research is gratefully acknowledged.

Notes

The literature usually disregards the effect of public sector policy on the equilibrium GDP or income. The analysis of the Keynesian effects is relevant in considering regional attitudes on separation from national states (Brosio and Revelli, 2003).

Interest on the public debt is excluded in order to make the results comparable with those of the existing literature, which usually does not apportion interest expenditure on a regional basis, as the criteria for doing so would be highly arbitrary.

For geographical, historical, and cultural reasons, the Italian Constitution established five autonomous regions with special statutes, having broader spending powers than the ordinary statute regions and correspondingly larger financial transfers from the central government.

This is the last year for which the data used in the empirical section of this paper are available.

However, the reforms of local government finance adopted during the 1990s have almost halved this vertical fiscal gap for regions and municipalities.

The usefulness of the distinction is clear when comparing the present results with the findings of Padovano (2007). Using data on the 20 Italian regions for 1963–2001, Padovano estimates the degree of progression across jurisdictions of public sector revenues. The results show a geographically progressive tax regime for the period 1996–2001. In theory, this would imply a positive degree both of redistribution and of risk sharing. The present analysis, however, confirms only the redistributive and not the risk-sharing impact of public sector revenue; indeed, general government revenue actually appears to amplify idiosyncratic shocks.

Following Ravn and Uhlig (2002) and Maravall and Del Rio (2001), the penalty parameter is set equal to seven.

Short-sighted governments might underestimate the longer-term negative consequences of deficits; pressure groups, in competing for resources, neglect the general repercussions on the public finances (the common pool problem). The result is a tendency for deficits to accumulate. As long as a deficit bias is present irrespective of cyclical conditions, pro-cyclical policies may emerge.