Cyclically Adjusted Local Government Balance

The paper provides an analysis of cyclically-adjusted budget balances of Italian local governments for the period 2002-2007. We find that local government balances appear to be relatively sensitive to the business cycle. In particular, a shock of 1 percent in GDP changes their financial resources by approximately 0.6 billion of euro. Moreover, we find evidence that both central and local governments' policies had a sizeable impact on cyclically-adjusted local government balances.