Fiscal federalism in Italy: improving efficiency and modernizing the country

It is by now an increasingly widespread view that the implementation of the new framework of financial relations between the State and local administrations foreshadowed by the constitutional reform of 2001 represents an unavoidable priority in the political agenda of the coming months.In the current economic and financial climate, the task of finally giving substance to fiscal federalism in Italy is an opportunity not to be missed if we are to embark on a new and more modern approach to public administration and policies by bringing citizens into closer contact with the authorities responsible for making revenue and expenditure decisions.The recovery of efficiency margins must constitute a priority goal of fiscal federalism, which should aim to eliminate any form of duplication in the performance of functions. Rather, there should be an emphasis on freeing up resources that could be progressively ploughed back into the private sector by reducing tax burdens.In order to facilitate this return to efficiency, and with the aim of ensuring that the equalizing mechanisms envisaged by the Constitution do not provide a disincentive to the achievement of effective autonomy for local administrations, it will be necessary in the costing of essential services to gradually phase out budgeting criteria based on historical costs in favor of the adoption of standards that can be applied throughout the country. In this way, contrary to fears frequently raised in public debate, the accomplishment of fiscal federalism could play a fundamental role in underpinning the guarantee of full access to essential services linked to the rights of citizens throughout the entire country.For the purposes of ensuring the complete success of the reform, it must represent the outcome of a wide debate, to be conducted within a parliamentary forum, which would involve representatives from sub-national levels of government and from both sides of the political fence. This process should start with a survey of revenue and expenditure flows at the central and sub-national levels, which all relevant responsible institutions should assist with.The establishment of a new framework for financial relations should also be part of a wider reform program of the country’s institutional set-up. In order to ensure that the functions assigned to institutions are matched by an allocation of adequate resources to the various sub-national administrative levels, including those vested with special forms of autonomy, the design of a new model for the country’s fiscal structure should, first and foremost, go hand-in-hand with an identification of the basic functions carried out by local authorities, which could also provide an opportunity for a more in-depth consideration of how the current system of local authorities might be simplified.Finally, of pivotal importance among the measures aimed at ensuring effective political management of the transition process leading up to the final introduction of fiscal federalism is the proposal to pass from a system of co-equal bicameralism, as envisaged by the Constitution, to an unequal bicameralism model, which would guarantee adequate representation for local autonomies.