Italy

Italy is a unitary country in which the regions have extensive rights and responsibilities. Overlapping constitutional task assignment causes ongoing litigation about the distribution of services between regions and central government. Strictly speaking, regions are part of the local level, together with provinces and municipalities. In 2013, Italian provinces were widely relieved of their duties. Due to the rejected constitutional reform of 2016, their complete abolishment failed. Alongside regions, municipalities play a significant role in public service delivery on the local level. A relatively big share of Italian local governments’ revenue stems from local taxation and surcharges on the national personal income tax. Whereas regions tax business output, municipalities focus on property taxation. Although, regions and municipalities have been provided with a pronounced financial autonomy, considerable power has been conferred on the central government over regional and local finances by the constitution. Furthermore, while municipalities are recognised to have a certain degree of autonomy to set their revenues (e.g. tax rate within certain limits, specific rules for tax base, etc.), this is not valid for regions. Since large parts of Italian health- care provision are organised by region, a considerable share of local expenditures flows (ca. 40-50 %) to this field. The fiscal situation of local governments in Italy is difficult to evaluate due to the opacity of the traditional accounting system (which was reformed in 2015) and incentives to window dress. However, the local level has seen repeated aggregate budget surpluses in the past years. There was a massive debt-restructuring in the years 2013/14 in which central government paid a big chunk of local governments’ debts to private creditors. Local governments have suffered quite intensely from the financial crisis and the following double-dip recession. Fiscal regulation of local governments in Italy is under permanent construction. Between 2011 and 2013, municipalities were subject to considerable fiscal framework uncertainty. A major change came with the abolishment of the Internal Stability Pact in 2015/16. Next to a simplified balanced budget rule for local governments, there are expenditure growth ceilings for regions. Rule-setting and oversight is concentrated at the national Ministry of Economy and Finance; the Court of Auditors also plays a part as external auditor body. Italian municipalities know the official state of financial distress, which is a structured process in terms of a situation close to bankruptcy.