To what extent do fiscal spending rules affect budget composition?

Abstract

The aim of this paper is to investigate the extent to which local budget composition reacts to variations in fi scal spending rules. It looks at Italian subnational governments and specifi c changes in the institutional framework, implementing a difference-in-discontinuities strategy. Results show that when a reduction in current spending is imposed, local authorities direct the cuts towards services. Furthermore, when an increase in capital spending is allowed, there is an increase in spending on infrastructure and local public debt.