From 1989 until 2018, almost 600 Italian Municipalities experienced the financial distress. Over the years, several regulatory changes have occurred to better discipline the municipal financial distress procedure to avoid selfish and unfair behaviour of local policy makers arising from informational asymmetry to the detriment of the Italian Government and the general public. The aim of the present project is i) to illustrate the historical and geographical evolution of this bankruptcy procedure over the 1989-2018 period; ii) to test the hypothesis that the legislative interventions, policies and/or the exogenous episodes were leading the dynamics of the local financial distress phenomenon; iii) to investigate the linkages between the political business cycle and the default declarations. In particular, we analyze how policies (among others, the reform of the Title V of the Italian Constitution in 2001, the Domestic Stability Pact DSP, etc.) influencing the spending capacity of local governments may impact on the default declarations. The results of the research are potentially useful for policy makers to provide a way to understand the dynamics occurred over time, to help addressing the possible regulatory updates and to better target their interventions.
The research aims to study the phenomenon of the Italian local financial distresses, which, according to our knowledge, has never been addressed in literature from the perspective proposed in this research. The novelty of the present research are i) to illustrate a dataset composed by almost 600 local financial distresses over the 1989-2018 period which, to the best of our knowledge, has never been supported by empirical estimates for the whole period; ii) to investigate the geographical distribution of these dynamics in Italy through time; iii) to test our hypothesis that the legislative interventions, polices and/or the exogenous episodes, such as both the financial and sovereign debt crisis, were leading the historical evolution of the local financial distress phenomenon; iv) to identify different normative regimes in order to understand which functions in the matter of financial disruptions are best centralized and which are best placed in the sphere of decentralized levels of government and the consequent effects on economic and social instability; v) to control in case of a positive impact of the legislation on the financial distresses whether it was of a sanatorium type with such immediate effects or can be labelled as structural reform aimed at regulation over time; and, finally, vi) to verify whether there is a connection between the political business cycle and the default declarations.
A first descriptive analysis of the dynamics of the financial disruption among Italian Municipalities demonstrated that it is likely influenced by two factors: the evolution of the regulatory framework and the recent economic downturn occurred as a consequence of the great financial 2008 and sovereign debt crisis. The new legislation provoked a significant reduction of declarations of distress in the late nineties, after the initial peak of 1989, in which the procedure was introduced, and the subsequent still intense five-year 1990-1994 period. Both the great and sovereign debt crisis determined a resurgence of instability, first slowly from 2008 to 2011, and then with greater impact from 2012. The aim of the research is to investigate further on this to test the hypothesis above illustrated and provide greater knowledge on the historical and geographical evolution of the phenomenon in order to better address the future by introducing policy measures and legislative interventions which are beneficial to the society.
Therefore, the results are potentially useful for both the Italian Legislator to provide him/her with a key to investigate the dynamics occurred over time and understand which policy instruments and functions in the matter of financial disruptions are best centralized and which are best placed in the sphere of decentralized levels of government in order to help him/her addressing the possible regulatory updates and for policy makers at all levels to better target their interventions.