Electoral Rules and Municipal Finances: Evidence From Two Reforms in Italy

Local finance offers an important testing ground for analyses of fiscal policy and political economics. The sheer number of local communities and the fact that many institutional features can be taken as common across localities inside a single country make the results of empirical analysis of local governments more convincing than either single case studies or inter-country comparisons (Besley and Case 2003). Moreover, local governments are often affected by reforms that can be taken as exogenous with respect to the local community. Hence, one can hope to use these episodes to cast light on important and unresolved issues in economics. Italy is a good case in point. At the beginning of the 1990s, local finance in Italy was affected by two reforms that deeply changed both the politics and the funding of local governments.