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Conditional intergovernmental transfers in Italy after the constitutional reform of 2001

Conditional intergovernmental transfers in Italy after the constitutional reform of 2001 Giorgio Brosio * Stefano Piperno ** DULCIS In FUNDO ??. Background. Constitutional reform of 2oo1 eliminates earmarked / sector grants by non mentioning them .

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Conditional intergovernmental transfers in Italy after the constitutional reform of 2001

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  1. Conditional intergovernmental transfers in Italy after the constitutional reform of 2001 • Giorgio Brosio* Stefano Piperno** • DULCIS In FUNDO ??

  2. Background Constitutionalreformof 2oo1 eliminates earmarked/sectorgrantsby non mentioning them. Detailedlistofrevenuetoolsdoesnot include them. No doubtaboutinterpretation. Paidtributetosubnationalautonomy, to the European Charter, etc.

  3. Background • At the sametime, some constitutionalprovisions create roomfor future earmakingthrough: • Equalizationgrantsforbasicfunctions; • Grantsforregionaldevelopment; Generalemphasis on equalityofentitlements and rightsacross the wholenation. • GrantsfromRegionstolocalmunicipalities

  4. Block grants for basic functions Constitution distinghishes between: • Basic functions, impacting on citizenship rights: health, education (not yet fully devolved), social protection, and municipal functions (still to be defined). Will account for 80% of total subnational expenditure. • Other functions: 20%.

  5. Block grants for basic functions • Twodistinctequalizationsystemswillapply. • Forbasicfunctions: “essentiallevels”, standard costs and fiscal capacity. • Targetedtoensureequalityoflevelsof service provisionacross the country. • Forotherfunctions: fiscal capacityonly.

  6. System for determination of block grants for basic services Essentiallevelsof service provision Standard costs Gross block grantm Minus: notionallyassignedrevenues = Net block grant

  7. Problems with implementation • Alternative in both 3 and 4 is between: a) to accept regional autonomy and to let voters (and other political mechanisms) solve the issue (more in line with the constitution). b) to intervene with controls and penalties. • Propensity among scholars and central government officials is to opt for the second option. • hard implementation, • curtailment of grants might increase efficiency, but it would make Regions even less compliant with levels.

  8. Problems with implementation • Implementation would even be harder in political economy terms, considering the large number of non efficient and non compliant Regions and local governments that will pressure simply for increases in financing; cross-cutting parties, areas, etc. • Increase of total size of block grants likely. • May depend on sector depending on relevance of sectors on national government electoral fortunes.

  9. Centralization/decentralizationofpolicies • D is a centrally provided good • H is a regionally provided good • Pc(aD,bH), • Pc the probability of re-election of the central government • aandbare the discount factors, assigned to the arguments, with 0 ≤a,b≤ 1. • Whena =bthe system is completely centralized • Whena > bthe system is decentralized • When b = 0 the system is totally decentralized

  10. Implications for block grants My guess is that: • For health, education a =b , hence problems will continue • for municipal servicesa > b, possible containment of block grants. • But will this system ever be implemented ?

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