Abstract Population decline is a major issue impacting environmental sustainability, economic growth and social well-being. Although earlier studies evaluated demographic factors, social forces and economic aspects associated with population decline in Europe, the role of territorial factors was less considered when investigating the spatial linkages between rural depopulation and the local context. As demographic patterns are the result of past dynamics depending on place-specific factors, this study hypothesizes that (time-invariant) territorial characteristics (altitude, geographical area, proximity to the sea, and urban hierarchy) are important drivers of the spatial variability in depopulation rates on a local scale. To verify this assumption, changes over time (1981–2011) in resident populations of Italian municipalities were investigated and a regression model aimed at identifying the relevant factors shaping the population decline in Italy was run separately for three decades (1981–1991, 1991–2001, 2001–2011) with depopulation rate as the dependent variable. Model estimation was based on a system of simultaneous equations where the dependent variable at time t is an explanatory variable of the model at a subsequent time (t + 1). Results show that basic territorial factors – and especially altitude - impacted significantly on local-scale depopulation rates. North-south differences in population decline emerged more clearly in the last decade. Municipalities with a declining population at a given time were more likely to experience depopulation also in the subsequent decade. These findings highlight the relevant role of territorial factors in shaping depopulation across Italy and the importance of a spatially explicit analysis of demographic dynamics for local development research and policy.