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Federalism, Party Competition and Public Expenditure: Empirical Findings on Regional Health Expenditure in Italy

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Part of the New Frontiers in Regional Science: Asian Perspectives book series (NFRSASIPER,volume 37)


Since the ‘90s, Italy has experienced a considerable decentralization of functions to the regions. This transformation has been especially relevant for the National Health System that has de facto assumed a federal system design. The federal reform aimed to discipline public health expenditure that drains a substantial share of the budget of Italian regions and is among the main causes of the regional deficits. Political economic analysis, however, suggests that the impact of federalism on public expenditure depends on central and local government strategies to win the electoral competition. Results derived in this chapter indicate that political competition actually works as a tool of fiscal discipline, as it shows a restraining effect on public health expenditure.


  • Fiscal federalism
  • Local budget
  • Multi-level policy-making
  • Public expenditure
  • Political competition
  • Health economics

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  1. 1.

    Besley and Coate (2003) compare the costs of common pool effect with the benefits of internalization of spillovers deriving from centralization, showing that centralization leads a cooperative legislature to over-provide public goods. The reason is that local voters will strategically appoint representatives with high demand for spending. In Dur and Roelfsema (2005), that result is reverted when costs cannot be shared among districts (as in the case of environmental regulation or shelter provision to asylum seekers).

  2. 2.

    See, for example, Migué (1997), Mazza and van Winden (2002), Dur and Roelfsema (2005).

  3. 3.

    Guccio and Mazza (2005) provides a small survey of the empirical studies verifying the impact of political economic variables on the allocation and/or size of intergovernmental grants.

  4. 4.

    At that time, lower classes of some areas did not know Italian and spoke only dialects.

  5. 5.

    Revenue also derived from a tax on family income and the possibility to add, next to the national tax, a tax on income from land and buildings. This rule applied also to provinces and it represented the main source of tax return.

  6. 6.

    In the South the percentage of people entitled to vote was half compared to Northeast. Only in 1912 universal suffrage was extended to the male population, and in 1946 also to the female population.

  7. 7.

    In 1949 it represented less than 13% of national expenditure.

  8. 8.

    The right to vote had been extended to the whole population.

  9. 9.

    In the 1960s the cost of collecting taxes on consumption, as a percentage of the total tax income, corresponded to more than 18%, six times more expensive than the cost to collect the homologous national tax on business.

  10. 10.

    Tax bases on land and buildings were checked by the land register and were updated with delay and without connection to inflation, also because of the electoral pressure of interested taxpayers.

  11. 11.

    It took more than 20 years after their creation to have them implemented.

  12. 12.

    Successively, the Constitutional Court extended the exclusion to self-employment earned income.

  13. 13.

    There was a common tax rate of 4%, but in 1996 municipalities got the power to increase it (within the ceiling of 7%) and to allow for tax exemptions and tax breaks.

  14. 14.

    In 1994, public debt reached 121.5% compared to 41% of 1970.

  15. 15.

    The Constitutional Court admitted them only as an extraordinary measure.

  16. 16.

    Although, there are not official data about the respect of the rules set, in 2006 18% of municipalities, among those that provided information, were not complying with the rules of the Pact.

  17. 17.

    This part does not take into account the law n. 42 of 2009, which is however not relevant for the empirical analysis in this chapter.

  18. 18.

    Penalties include the automatic increase of tax rates, the impossibility to enrol personnel or to make discretionary expenses, as well as penalties for governmental or administrative bodies.

  19. 19.

    It is still unclear how to define investment expenditures: wide definitions allow for inefficient behaviour, but strict definitions risk limiting investments in human resources. In the past, sub-national governments used to finance also current expenditure through debts, but now the Constitution forbids it. This prohibition, however, can be eluded, though temporarily, delaying the payment to firms providing goods and services to public administrations. Thus, governments with financial problems have highly increased their debt load for current expenditures especially in the health sector. Their difficulties have worsened and they have exerted strong pressure to get help from higher levels of government, worried about the spread of financial problems among firms for which public administrations are the main, if not unique, client. Another form of elusion of this prohibition results from the negative impact of disputes with creditor firms or employees about wage increases, which generate further costs.

  20. 20.

    The SSN was originally organized on the basis of a strictly vertical three tier structure of government: central (Ministry of Health), regional (20 Regional Health Authorities, RHAs) and local (local health agencies, Unità Sanitarie Locali, USL). A National Health Fund (Fondo Sanitario Nazionale, FSN) was created and financed mainly from general taxation, employer and employee payroll contributions, and a health tax levied on self-employed. The latter was determined annually by the central government and allocated up to down.

  21. 21.

    LEA covers all medical care considered to be necessary, appropriate, and cost-effective.

  22. 22.

    An overview of the Italian health care system, which includes the debate on the regional responsibilities is provided by France et al. (2005) and Ferrè et al. (2014).

  23. 23.

    For further details on the Italian health care financing system, see Bordignon et al. (2002).

  24. 24.

    The amount of funds transferred to or received from the FPN had to be determined according to a complex formula, allowing for the fiscal capacity of a region, its population size and age composition, its historic expenditure on health care, the size and the specific characteristics of its territory.

  25. 25.

    For Italy: Fedeli (2015); for Canada: Di Matteo and Di Matteo (1998) and Ariste and Carr (2001); for USA: Freeman (2003), Moscone and Tosetti (2010) and Wang (2009); for Spain: Costa-Font and Pons-Novell (2007),

  26. 26.

    Solé-Ollé and Sorribas-Navarro (2008) provide empirical support for the impact of partisan alignment in the allocation of intergovernmental transfers in Spain in the decade 1993–2003.

  27. 27.

    Levaggi and Zanola (2003) take into account also private health expenditure as an independent variable to investigate the relationship between it and public spending.

  28. 28.

    This reform has not been implemented simultaneously in each region but in different years, according to regional constitutions.

  29. 29.

    We exclude Trentino Alto Adige, an autonomous region where the responsibility of public health care is devolved at a provincial level.

  30. 30.

    In Italy, citizens have free choice of the region in which to obtain health care. Regions of residence financially cover their patients’ mobility.

  31. 31.

    See Greene (2003).


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Cavalieri, M., Giardina, E., Guccio, C., Mazza, I. (2019). Federalism, Party Competition and Public Expenditure: Empirical Findings on Regional Health Expenditure in Italy. In: Kunizaki, M., Nakamura, K., Sugahara, K., Yanagihara, M. (eds) Advances in Local Public Economics . New Frontiers in Regional Science: Asian Perspectives, vol 37. Springer, Singapore.

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