Download This PaperFinancial & Accounting Regulation and the Sustainability of Municipalities' Financial Policies. The Case of the Italian 'Internal Stability Pact'.
23 Pages Posted: 21 Jun 2016
Date Written: July 20, 2009
Abstract
This paper has an explorative nature and focuses on the relationships between the financial and budgetary constraints established by the Central Government through the Internal Stability Pact (ISP), and the sustainability of the Italian Municipalities‟ decisions. The paper aims to investigate the dynamics between accounting rules and management needs, the consequences of the application of the ISP on financial statements composition, the allocation and use of resources, and finally the influence on the strategic decisions made by political leaders and public managers. Hence the paper intends to offer an evaluation of the choices and strategies concerning accounting, debt, investment and management made by the Italian municipalities. From a methodological point of view, the paper mainly adopts an inductive approach, based on a single-country case study and on the following research instruments: literature and documental analysis, some interviews to civil servants working on the municipalities‟ financial management area, and finally a survey on the official financial reports – from 2002 to 2006 – of a representative sample of 101 Italian Municipalities constrained by the Internal Stability Pact.
Concerning the results, the analysis of the existing literature and of the empirical data suggests that the application of the Pact deeply influenced Municipalities internal and external management and their policies concerning accounting, debt and investment. In addition it works as an indirect incentive to management short-termism, and it seems to generate a critical trade-off between some of the main Public Sector objectives: the control public expenses and deficit; the enhancement of the Italian Municipalities‟ autonomy and finally the improvement of the efficiency and the effectiveness in internal and external management and in the local governance. Consequently, focusing on the general issue, it seems that accounting and finance systems concerning Italian municipalities do not completely fit with their managerial needs. In addition, accounting and financial rules could generate some difficulties in the budgeting process and in the management of local resources. Anyway these gaps seem to depend not only on regulation deficiencies, but also on some characteristics of Italian administrative culture and institutions and of reforms‟ implementation process.
Keywords: fiscal constraints, fiscal governance, management decisions, local government
JEL Classification: M10, M20, M40, H72, H77, H39, M49
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