Evidence from Italy: how local governments manipulate tax and spend policies to help win re-election

There is a clear incentive for politicians to manipulate tax and spend policies in advance of an election to help boost their electoral chances. Yet while this phenomenon has been studied extensively at the national level across Europe, there is relatively little evidence of it at the level of local politics. Drawing on a study ... Continue

Team performance and the perception of being observed: insights from a natural experiment in football

Due to Covid-19, many football matches across Europe have been played behind closed doors. Drawing on recent research, Massimiliano Ferraresi and Gianluca Gucciardi assess how team performance is affected by the presence of supporters. Using data from the top divisions in England, France, Germany, Italy, and Spain, they find that home teams won fewer points when playing behind closed doors than they would have achieved with supporters in attendance, which potentially offers some insights on the performance of workers when they feel they are not being observed

Spatial interaction in local expenditures among Italian municipalities:evidence from Italy 2001-2011

We estimate a spatial autoregressive dynamic panel data model, using information on 5,564 Italian municipalities over the period 2001-2011, exploiting their border contiguity as a measure of spatial neighborhood. We find a positive and statistically significant effect of neighboring expenditures on total, capital and current expenditures of a given municipality. We do not find any evidence of yardstick competition when we take account of political effects, while we do find a negative relationship between spatial interaction and the size of the municipality for current expenditure. Thus, we conclude that spillover effects drive the strategic interaction

Responsiveness of local governments to financial and institutional reforms: evidence from Italy

This thesis proposes three distinct contribution to the field of economic analysis on local government. In particular, each of the three studies focuses on a specific Italian policy reform allowing us to analyze how it affects local fiscal policy decisions. In the first chapter we investigate the impact on expenditure of tax on principal dwellings before 2008 and the impact on expenditure of the grant which, after 2008, compensated for the abolition of the tax on principal dwellings. We setup a theoretical model in which the introduction of a political bias against taxation gives rise to the flypaper effect. If the public good is very important with respect to private consumption then an increase in the municipal size implies a decrease in the extent of the flypaper effect; the opposite happens if the public good is not important with respect to private consumption. We then test the hypotheses coming from the model by using data on Italian municipalities, focusing on two groups of expenditure: the principal expenditure, which are those essential to guarantee the minimum standard daily life of a municipality and the rest, defined as residual expenditure. We find that the flypaper effect holds for both kinds of expenditure, but decreases with respect to population in the case of principal expenditure and increases with respect to population in the case of residual expenditure. In the second chapter we setup a model in which the residents of two neighboring municipalities can use the services provided by public infrastructures located in both jurisdictions. If services are either complements or substitutes in use, the municipalities strategically interact when investing in infrastructures; moreover, when they differ in population size, the small municipality reacts more to the expenditure of its neighbor than the big one. The theoretical predictions are then tested by estimating the determinants of the stock of public infrastructures of the municipalities belonging to the Autonomous Province of Trento, in Italy. By introducing a spatial lag-error component, we find that municipalities positively react to an increase in infrastructures by their neighbors, but the effect tends to vanish above a given population threshold. Finally, in chapter 3 we use data for all Italian municipalities from 2001 to 2007 to empirically test the extent to which two different electoral rules, which hold for small and large municipalities, affect fiscal policy decisions at local level. Municipalities with fewer than 15,000 inhabitants elect their mayors in accordance with a single-ballot plurality rule where only one list can support her/him, while the rest of the municipalities uses a runoff plurality rule where multiple lists can support her/him. Per capita total taxes, charges and current expenditure in large municipalities are lower than in small ones if the mayor of the large municipality does not need a broad coalition to be elected, otherwise the use of a single- or double-ballot rule does not make any difference in the policy outcome

Local infrastructures and externalities: does the size matter?

We setup a model in which the residents of two neighboring municipalities can use the services provided by public infrastructures located in both jurisdictions. If services are either complements or substitutes in use, the municipalities strategically interact when investing in infrastructures; moreover, when they differ in population size, the small municipality reacts more to the expenditure of its neighbor than the big one. The theoretical predictions are then tested by estimating the determinants of the stock of public infrastructures of the municipalities belonging to the Autonomous Province of Trento, in Italy

Political cicles and Yardstick competition in the recycling of waste, evidence from Italian provinces

Recycling and the recovery of waste are crucial waste management strategies. In light of the new EU circular economy approach, these strategies remain core pillars of a competitive and sustainable waste value chain. Local governments have an important role in controlling and checking the implementation of waste management policies. We study the spatial determinants of waste recovery by using a dataset of 102 Italian provinces from the years 2001-2014. We exploit the political cycle of the provinces to isolate the effects of waste recovery in one province on neighboring provinces. We find that provinces mimic their own neighbors’ in the separate collection of waste aimed at recycling and recovery, with this effect being fully guided by provinces where the president can run for re-election (consistent with the yardstick competition hypothesis) but only when waste management policies become politically salient, that is, after the transposition of the 2008 EU Waste Framework Directive

Did the EU Airport Charges Directive Lead to Lower Aeronautical Charges? Empirical Evidence From a Diff-in-Diff Research Design

Abstract In this study we analyse the impact of the EU Airport Charges Directive on the level of aeronautical charges for EU airports serving between 2 and 20 million passengers, over the period 2008–2017, using a difference-in-differences research design. We find that the transposition of the Airport Charges Directive into national legislation has led to a statistically significant reduction in the level of airport charges, but only after a few years. We also find the existence of heterogeneous treatment effects that depend on the quality of transposition of the Directive

Switch towards tax centralization in italy: a wake up for the local political budget cycle

The abolition of the municipal property tax on owner-occupied dwellings accomplished in Italy in 2008 offers a quasi-natural experiment that allows for the identification of the presence of political budget cycles - the incentives for municipalities close to elections to manipulate policy outcome decisions. Our empirical analysis shows that the reform impacted on municipalities that in 2008 were in their preelectoral year, by expanding the size of their budget in the form of an increase of current expenditure and fees and charges, but this did not occurred in municipalities that experienced their pre-electoral year before 2008

Why tackling late government payments to businesses should be a key priority

Every year, many businesses across Europe go bankrupt as a result of payment delays. For this reason, the EU established a Late Payment Directive in 2011. Maurizio Conti, Leandro Elia, Antonella Ferrara and Massimiliano Ferraresi assess the impact of the directive, finding it has had some notable positive effects for the financial position of firms. Given the strain many businesses are under as a result of the Covid-19 outbreak, it is now more vital than ever for policymakers to address the problem

Spillover effects in local public spending

This paper investigated the fiscal interactions between Italian municipalities over the period 2001–11 and found a positive horizontal interdependence in spending decisions. The results are robust to different specifications of the spatial neighbours and are confirmed by a natural experiment (an earthquake in the Abruzzo region of Italy in 2009) that creates an exogenous variation in the neighbours’ spending. Furthermore, there is no evidence of yardstick competition when one considers political effects, while a negative relationship is found between spatial interaction and the size of the municipality. Thus, it can be concluded that spillover effects drive the strategic interactions in spending decisions