Political electoral cycles and evolution of Italian health care system financing. A long run perspective

Abstract

A notable feature of the Italian healthcare system – where funding is centralized and regions manage services locally – is the mismatch between expenditure and funding dynamics, leading to a structural deficit and frequent bailouts on the part the regions. To explain the actions of central and regional governments, we propose a strategic game. The nature of the game varies depending on whether we are in an electoral period for the renewal of the regional government. During elections, regional incumbents use their information advantages, and it is rational for them to increase the deficit, whereas for the central government, it is rational to reduce transfers.That result is confirmed by the empirical analysis run on the 15 Italian Regions with ordinary statutes between 1982 and 2020. We have used Italy as a case study to demonstrate the relevance of our hypothesis, but we believe that the theoretical framework proposed in our paper can be applied to explain the significance of political cycles in determining the interaction between different levels of government in other federal contexts.