Essays on Political Economy and Local Fiscal Policy

This PhD thesis investigates the role of the reduction of fiscal autonomy and uncertainty in the allocation of resources in driving the behaviour of Italian municipalities in non-autonomous regions and of the central government. Focusing on the uncertainty of grants to compensate the abolition of the property tax on main dwellings, we construct a regression discontinuity (RD) and regression kink (RK) design to test how the behaviour of municipalities changes depending on whether they are in a “bad” state (when they manage fewer resources after property tax reform) or in a “good” state (when they manage more resources after property tax reform), and also in light of the “partisan effect” (the mechanism that allows central governments to allocate more resources to the lower layer of government politically aligned with it). An empirical analysis of Italian municipalities suggests that: 1. Municipalities acted differently in terms of waste tax implementation. Their behaviour depended on the benefits or costs they assumed af- ter the abolition of the property tax on main dwellings: in particular municipalities that suffered a loss of resources increased the waste tax more; 2. Property tax reform led to an imperfect substitution between the prop- erty tax on the main dwelling and the waste tax, with a consequent loss in equality; 3. Despite the weakness of the ex-post control and the absence of pun- ishment for lying municipalities concerning the definition of a compen- satory grant may allow the presence of a weak “partisan effect”, the reform of the main dwelling property tax was transparent in resources allocation.