The Effects of Fiscal Decentralization on Publicly Provided Services and Labor Markets
65 Pages Posted: 25 Jun 2019 Last revised: 13 Jan 2020
Date Written: September 3, 2019
This paper studies how fiscal decentralization affects the provision of local services. It exploits a 1993 reform that increased the fiscal autonomy of Italian municipalities by replacing government transfers with revenues from a new local property tax. The identification leverages cross-municipal variation in the degree of decentralization that stems from Allied bombings during WWII. Decentralization reduced overall spending but expanded municipal services, such as nursery schools. These effects are larger in areas with higher political competition. The paper also investigates how the reform affected the labor markets. Decentralization, likely through expanded nursery schools, increased female labor supply, reducing the gender gap in employment.
Keywords: fiscal decentralization, female labor supply, child care, nursery schools, local property tax
JEL Classification: H71, H75, J20, H77, I21
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