Measuring Horizontal Fiscal Imbalances: The Case of Italian Municipalities
SERIES Working Paper N.49
33 Pages Posted: 11 Sep 2014
Date Written: July 28, 2014
In the literature on fiscal federalism, vertical fiscal imbalances have been widely studied, while the theme of horizontal fiscal imbalances and inequality between local governments’ fiscal capacities is still less explored. This paper contributes to fill the gap. A new method to compute fiscal capacities based on regression analysis is proposed, which can overcome some of the drawbacks of traditional methods such the representative tax system. This new approach is then employed to evaluate the fiscal capacities of Italian municipalities over the period 2002-2010. Finally two global measures of the horizontal fiscal imbalance are then used to evaluate the equity implication of a major policy change occurred in 2008 in Italian municipal finance.
Keywords: Inter-governmental grants, horizontal and fiscal imbalances, equalisation, fiscal capacity
JEL Classification: H73, H77
Suggested Citation: Suggested Citation