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.

Detailed list of revenue tools does not include them.

No doubt about interpretation.

Paid tribute to subnational autonomy, to theEuropean Charter, etc.

Background

At the same time, some constitutional provisions create room for future earmaking through:

Equalization grants for basic functions;

Grants for regional development;

General emphasis on equality of entitlements and rights across the whole nation.

Grants from Regions to local municipalities

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%.

Block grants for basic functions Two distinct equalization systems will apply.

For basic functions: “essential levels”, standard costs and fiscal capacity.

Targeted to ensure equality of levels of service provision across the country.

For other functions: fiscal capacity only.

System for determination of block grants for basic services

Essential levels of service

provision

Standard costs

Gross block grantm

Minus: notionally assigned revenues

= Net block grant

Combinations of efficiency and service delivery

Average efficiency

Essential levels

1. Efficient and compliant

4. Efficient, but not compliant with levels

4. 3. Non efficient and non compliant with levels

2. Non efficient, but compliant

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.

Problems with implementationImplementation 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.

Centralization/decentralization of policies

D is a centrally provided goodH is a regionally provided goodPc(aD,bH),

Pc the probability of re-election of the central government

a and b are the discount factors, assigned to the arguments, with 0 ≤a ,b ≤ 1.

When a =b the system is completely centralizedWhen a > b the system is decentralizedWhen b = 0 the system is totally decentralized

Implications for block grants

My guess is that:For health, education a =b , hence problems

will continue for municipal services a > , b possible

containment of block grants.

But will this system ever be implemented ?