Subnational fiscal balance, interregional redistribution and risk-sharing in Italy

Abstract

ABSTRACTThis paper provides new estimates of redistribution and risk-sharing across regional territories accomplished by the Italian public sector. For the first time, subnational governments’ fiscal balances are explicitly considered and a different methodological approach is followed, providing risk-sharing estimates also at a regional level. It is found that public policies only slightly reduce permanent differences in per capita gross domestic product (GDP) across regions (0.9–2.7%), but, at the same time, they enhance idiosyncratic shocks by 4.8%. Risk-sharing estimates differ significantly among regions that can partially self-insure through fiscal deficits. New estimates diverge from those assessed with traditional methods and suggest important policy implications.