Abstract

The Italian Constitution was emended in 2001 to change the distribution of powers between national and regional governments. More spending and taxing powers are now assigned to regional governments. The provisions of the new Constitution are not sufficient to completely define a new system of fiscal federalism. The incompleteness is most evident with respect to the fundamental question whether the reform has increased or not the degree of decentralization of the government sector. The national government has yielded legislative powers on activities such as education, welfare, mass transportation and others but has maintained the power to define the level of outputs regional governments are expected to provide in a variety of fields. The paper argues that a strictly regulated decentralization is no improvement upon centralized provision. This question is relevant because the new Constitution does not define the extent and the properties of the equalizing grant programs that are expected to integrate the tax revenue of poor regions. A case is presented for the extent of interregional equalization to be made an inverse function of the degree of regional autonomy. Defining a reasonable system of fiscal federalism requires a comprehensive interpretation of the new Constitution provisions and some help from the theoretical propositions of fiscal federalism. It also requires political choices on a variety of parameters that are not completely defined in the new Constitution. The paper provides an outline of a legislative proposal that solves - albeit from a personal point of view - the under-determination of the new Constitution. Where autonomy is unbounded (as it is the case with a limited subset of the new regional powers) then partial equalization is called for; where regional autonomy is bounded by the constraint of equal provision (as it is the case with health, education and social welfare spending) then full financial equalization is required. In the former case, block unconditional grants would be called for; in the latter national government grants should be of the conditional variety.