Switch toward tax centralization in Italy: a wake-up for the local political budget cycle

Are the incentives to expand expenditure before local elections affected by the composition of local governments’ revenues? We explore this issue by exploiting the Italian government bill that in 2008 replaced the municipal tax on main residence with a vertical transfer. Relying on staggered dates o...

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Bibliographic Details
Published in:International tax and public finance 2019-08, Vol.26 (4), p.872-898
Main Authors: Ferraresi, Massimiliano, Galmarini, Umberto, Rizzo, Leonzio, Zanardi, Alberto
Format: Article
Language:English
Subjects:
Autonomy
Budgets
Business Taxation/Tax Law
Economics
Economics and Finance
Incentives
Local elections
Local government
Municipal taxation
Public Finance
Residence
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Summary:Are the incentives to expand expenditure before local elections affected by the composition of local governments’ revenues? We explore this issue by exploiting the Italian government bill that in 2008 replaced the municipal tax on main residence with a vertical transfer. Relying on staggered dates of municipal elections to identify the effect of the reform, we find evidence of a political budget cycle, but only for municipalities that in 2008 were in their pre-electoral year. The result suggests that a lower degree of municipal tax autonomy strengthens the incentives to expand the size of the budget before the elections.
ISSN:0927-5940
1573-6970
DOI:10.1007/s10797-019-09531-2