Ambition beyond feasibility? Equalization transfers to regional and local governments in Italy

The paper illustrates the present system of intergovernmental transfers in Italy with a focus on equalization grants. There are presently two separate systems operating in the country. The first one allocates funds to the regions, while the second one finances municipalities. The constitution of 2001 sets the principles for both systems. It introduces the obligation for the state to determine and ensure, by providing adequate financing, uniform essential levels, i.e. standards, of provision across the whole country for a set of basic services assigned to regions and local governments. The implementing legislation (the so called Fiscal Federalism Law of 2009) mandates the use of standard expenditure needs and of fiscal capacity for the allocation of equalization transfers. These are extremely ambitious aims, only partially achieved. The Regional Health Fund is the dominant regional fund and is allocated, fundamentally, on a slightly modified per capita basis, upon agreement reached among regions and the central government within the State-Regional Governments Conference. The Municipal Solidarity Fund, in existence since 2014, shows more determination to implement the legal mandates. Allocations are determined on the basis of standardized expenditure and fiscal capacity. The Fund has also been subject to almost yearly changes and evolves in a framework of restructuring of the finances of the public sector characterized by continuous changes that make the system extremely difficult to manage, and also to understand. The paper presents the various steps for the determination of individual allocations and evaluates the merits, but also the difficulties and incongruities of the procedures adopted.