Abstract

The concept of fiscal residuum as a territorial-based index of public activity has achieved odd popularity among researchers and practitioners, and it is largely used in the public debate, though it presents several limitations. In this paper, one of such weaknesses is explicitly addressed: the inclusion of regional economic linkages in the evaluation of the economic effects of regional fiscal residua. We apply a novel methodology to Italian data on regionalised public revenues and expenditures for the years 2000-2017. We augment the onestep approach used for analysing the long- and short-run economic effects of regional fiscal residua with information on the trade linkages occurring across the regions and we find a limited redistributive effect of the fiscal system from a territorial perspective. The risk-enhancing role of the fiscal system is also detected. We find that regional disposable income growth positively depends on the growth of regional disposable income of the trade partners of a given region. Our results confirm the relevance of economic linkages among the regions and suggest the importance of considering fiscal residua within the broad perspective of the role of interregional transfers for regional development.