Abstract

Deficit spending has been frequently used in Italy as a guide to budgetary policy aiming to help economic recovery or providing stimulus to long run economic growth. As a result, a dramatic increase in the stock of public debt has followed. The slow growth of the Italian economy in the last ten years has gone along with the notion that decentralization of activities from the central to the local and regional governments could improve efficiency in resource allocation and provide room for policies at the local level directed to help economic recovery. The paper shows that this is not the case. There is no room for increases in public spending; to the contrary, contraction in size of the overall budget is expected in the next years. Furthermore, the decentralization process presently under way only regards substitution of own revenue to central government grants with no effect on global resources. Proposals for Constitutional reforms to introduce the balanced budget requirement are going to put further constraints on local government opportunities.