The Strategic Use of Swaps by Italian Regions

Swaps have been extensively employed by Governments and local administrations to manage their debt and related costs, but the financialisation of the public sector had insufficient attention in the literature. This study creates the first database on swaps underwritten by Italian regions to investigate their impact on total debt and their strategic use, i.e., impact on discretional debt. Panel data results show that regions with higher debt exhibit a larger interest rate exposure and have employed derivatives for strategic purposes in attempts to counter balance the reduced resources received from the central state, in line with other countries' experience. Implications of results for regulators and governance of risks are provided