The Italian Road to Fiscal Federalism

The recent law on fiscal federalism opens the path to the real introduction of federalism in Italy. The Italian State’s evolution towards federalism began in the 1990s and led to constitutional reform in 2001. Nevertheless, for the following years regions and local bodies have hardly been able to profit from the new powers they were endowed with, since they have continued to rely on the previous model of financing expenditures. This model was very centralistic, because it accorded regions state grants rather than powers to levy taxes. This system has fostered, in a concrete way, political and financial unaccountability; because the regions that did not tailor their expenses according to the state funding were given extra grants by the State. Moreover, it has not provided equal public services throughout the country, because the regions in deficit often offered worse services than those provided in the regions that complied with the budget they were allocated. This model was finally substituted with the new one this year. The new model attributes to regions and local bodies real tax powers, together with moderate grants to ensure basic social right. It aims at achieving greater accountability at regional and local levels, through a system of innovative incentives, disincentives, and sanctions.