Redistribution and Risk Sharing in Italy: Learning from the Past

Abstract

This paper investigates the role of public policies in Italy by assessing both the redistribution and risk sharing functions of interregional Net Fiscal Flows over a long time horizon. Its main novelty relies on the comparative approach that allows to contrast results obtained for two periods characterized by relevant diversity about design of regional policy and dynamics of regional convergence. Moving from 1951–65 to 1983–92, interregional redistribution increases from 10%–18% to 19%–30%, with a clear rise in the share of current to total expenditure. Concerning risk sharing, the role of fiscal policy in smoothing out idiosyncratic risks is weak in 1951–65 but significant in 1983–92. Although based on a specific case, we believe that the evidence provided in this paper allows to draw more general conclusions: when assessing the regional redistributive and risk sharing power of national fiscal policies, one should carefully take into account many different factors related to the existing policy regime, the main being the composition of government spending between current expenditure and public investment.

Keywords: fiscal policy, redistribution, risk sharing, regions

JEL Classification: E62, H23, H50, R11