erc/metu
INTERNATIONAL CONFERENCE IN ECONOMICS  IV
September 13-16, 2000, Ankara

State and Local Expenditure in the Growth of the Italian Public Sector

Gabriella Legrenzi (University of Milan, Italy)

Abstract

The Italian public sector size exhibited a relevant growth in the post-war period, that inverted its trend only in the recent period, through the combined effect of the unsustainability of welfare expenditure and the EMU constraints on national fiscal policies.

The purpose of this paper is to investigate into the relationships between central and local governments in determining this growth, by considering desegregate data on Region, Province and Comuni, the main Italian local governments, as well as the State expenditure. We demonstrate that the power to spend of the local governments, when not accompanied by a corresponding taxing power, can cause relevant instances of excessive government, that grows beyond the electors’ preferences. The importance of transfers from the central to local governments suggests as well the empirical relevance of the flypaper effect, representing a kind of fiscal illusion striking local governments.

Economic Research Center
Middle East Technical University
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