Fiscal rules have gained importance in recent decades given ever increasing deficits and public debt around the world. In this project, we add to a small literature which recently evaluated the budgetary and economic consequences of fiscal rules in quasi-experimental set-ups. To do this, we exploit the reform of a fiscal rule applied to Italian municipalities and examine its distributional impact. The introduction of a new population cutoff, above which jurisdictions have to comply with the rule, gives rise to a Difference-in-Discontinuity design. Since Italian municipalities have substantial tax autonomy, including the possibility to levy a non-linear income surcharge, we are able to identify differential effects along the income distribution. Preliminary results suggest that municipalities mostly raised taxes on middle- and high-income households. Mechanisms such political economy factors will be exploited in the course of the project.

Client

ZEW GmbH , Mannheim , DE

Project duration

01.08.2018 - 30.07.2019

Contact