Abstract

This paper studies, for the period 1983-2015, the impact of the Central Government's fiscal policy on the redistributive (long-run) and risk-sharing (short-run) effects of horizontal fiscal flows among Italian regions. The main novelty of this study is an empirical framework that allows to test whether the redistributive and risk-sharing effects of horizontal fiscal flows changed over time. Our estimates suggest that although the redistributive effects of horizontal fiscal flows are substantial, their magnitude declined after the 1990s as a consequence of the fiscal adjustments undertaken by the Italian Government to which regions are the ultimate contributors. We also point out that after the unfolding of the recent economic and sovereign debts crises, the horizontal fiscal flows started to act as a risk-enhancing device with respect to short-term shocks to Italian regions' economic activity.