The Effects of Fiscal Decentralization on Publicly Provided Services and Labor Markets
71 Pages Posted: 25 Jun 2019 Last revised: 5 Aug 2020
Date Written: August 4, 2020
This paper studies how fiscal decentralization affects local services. It explores a 1993 reform that increased the fiscal autonomy of Italian municipalities by replacing government transfers with revenues from a local property tax. Our identification leverages cross-municipal variation in the degree of decentralization that stems from bombings during WWII. Decentralization reduced local spending but expanded municipal services, such as nursery schools. These effects are larger in areas with greater political competition. The paper also investigates how the reform affected labor markets. Decentralization increased female labor supply—probably by the expanded availability of nursery schools—thereby reducing the gender gap in employment.
Keywords: fiscal decentralization, female labor supply, childcare, nursery schools, local property tax
JEL Classification: H71, H75, J20, H77, I21
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