Who Pays for Fiscal Rules? Evidence From Italian Municipalities
Who Pays for Fiscal Rules? Evidence From Italian Municipalities
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.