The decline in municipal investments between Domestic Stability Pact and lack of financial resources

This paper analyzes the decline in Italian municipal investments that began in the middle of the last decade. The analysis shows that, organizational methods for service provision budgetary financial conditions being equal, investments declined more sharply in the municipalities subject to the Domestic Stability Pact than in those which were exempted. The Pact effects have been relatively stronger for those municipalities in better financial conditions, that would have been able to finance investments with their own resources. In more recent years, the relaxation of the constraints and the introduction of regional pacts have alleviated difficulties in settling expenditure arrears. The Pact has helped to achieve the main goal of the legislator, i.e. to keep the deficit under control. It has also provided a stimulus for local governments to be more rigorous in drafting their budgets, leading to a closer correlation between the amounts committed and those actually spent, in line with the provisions of the new accounting system which will come into force in 2015.