Decentralization of pubblic expenditure and growth in Italy: does the composition matter?

In this paper we exploit data at regional level on decentralized public expenditure provided by Conti pubblici territoriali from 1996 to 2014 and we decompose decentralized public expenditure into current and capital spending. The aim is to disentangle their specific effect on economic growth. Since literature does not provide unanimous indication about the effect of different component of expenditure on growth, we consider a generalized additive model, which is a semi-parametric estimation method that allows more flexibility than conventional estimation techniques. Our findings show a non-linear effect, that is different according to categories of expenditure. More specifically, the effect of capital expenditure is positive, while, decentralized current expenditure tends to have a negative effect on the rate of economic growth.