Cover IMF Working Papers
Buy Book in Print
Fiscal Rules to Tame the Political Budget Cycle: Evidence from Italian Municipalities
Author:
Lorenzo Forni
Search for other papers by Lorenzo Forni in
Current site
Google Scholar Close
and
Andrea Bonfatti null

Search for other papers by Andrea Bonfatti in
Current site
Google Scholar Close
Series:
IMF Working Papers
Volume/Issue:
Volume 2017: Issue 006
Language:
English
Publication Date:
20 Jan 2017
DOI:
https://doi.org/10.5089/9781475569971.001
ISBN:
9781475569971
ISSN:
1018-5941
Pages:
20
Keywords:
WP; municipality; analysis; capital; fiscal rules; local government finance; regression discontinuity; budget cycle; capital spending; DSP rule; regression discontinuity analysis; baseline result; DSP threshold; Capital spending; Budget planning and preparation; Current spending
Legal-disclaimer:
IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.
Download PDF (1.2 MB) Download Epub
The paper provides evidence that fiscal rules can limit the political budget cycle. It focuses on the application of the Italian fiscal rule at the sub-national level over the period 2004-2006 and shows that: 1) municipalities are subject to political budget cycles in capital spending; 2) the Italian subnational fiscal rule introduced in 1999 has been enforced by the central government; 3) municipalities subject to the fiscal rule show more limited political budget cycles than municipalities not subject to the rule. In order to identify the effect, we rely on the fact that the domestic fiscal rule does not apply to municipalities below 5,000 inhabitants. We find that the political budget cycle increases real capital spending by about 35 percent on average in the years prior to municipal elections and that the sub-national fiscal rule reduces these figures by about two thirds.
  • Collapse
  • Expand
Cover IMF Working Papers
IMF Working Papers
ISSN:
1018-5941
Publisher:
International Monetary Fund