Fiscal Rules vs. Political Culture as Determinants of Soft Budget Spending Behaviors: Evidence from Italian and French Regions

IREF Working paper No. 1/2012

47 Pages Posted: 29 May 2012

See all articles by Jean-Michel Josselin

Jean-Michel Josselin

Université de Rennes I; National Center for Scientific Research (CNRS)

Fabio Padovano

University of Rome III - Department of Political Sciences

Yvon Rocaboy

Université de Rennes 1 - Faculte de Sciences Economiques

Date Written: May 28, 2012

Abstract

This paper analyses intergovernmental transfers in France and Italy to assess how soft budget spending behaviors may result from slacks in institutional constraints or from phenomena related to political culture, like administrative practices or implementation of rules. It innovates on the previous literature, which concentrated on single countries, by adopting a comparative perspective. We estimate two separate but identical autoregressive forecasting model on French and Italian data to evaluate the extent to which regional administrators of each country can expect to be bailed out given the fiscal rules and institutions they face. This allows to proxy the bailout expectations in both countries and their role in determining soft budget spending behaviors. A larger impact of expectations is taken as evidence of greater discretion in fiscal decisions over and beyond the formal fiscal rules in place, evincing a more lax political culture. The estimates indicate that soft budget constraints and bailing out expectations are a quantitatively important component of local government spending in both countries, regardless the different degrees of stringency of fiscal rules and the type of grants and expenditures (total, current and capital) examined.

Keywords: Comparative analysis, Institutions, Expectations, Intergovernmental relations, Transfers, Local public spending, Bailing out

JEL Classification: H71, H73, H77, D78, P43, P48, P52

Suggested Citation

Josselin, Jean-Michel and Padovano, Fabio and Rocaboy, Yvon, Fiscal Rules vs. Political Culture as Determinants of Soft Budget Spending Behaviors: Evidence from Italian and French Regions (May 28, 2012). IREF Working paper No. 1/2012, Available at SSRN: https://ssrn.com/abstract=2068497 or http://dx.doi.org/10.2139/ssrn.2068497

Jean-Michel Josselin (Contact Author)

Université de Rennes I ( email )

11 Rue Jean Macé
35065 Rennes Cedex, Rennes
France

National Center for Scientific Research (CNRS)

3, rue Michel-Ange
Paris cedex 16, 75794
France

Fabio Padovano

University of Rome III - Department of Political Sciences ( email )

Cia Corrado Segre 2
Roma, 00146
Italy
+390655176402 (Phone)
+390655176234 (Fax)

Yvon Rocaboy

Université de Rennes 1 - Faculte de Sciences Economiques ( email )

7, Place Hoche
35000 Rennes
France

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