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La Chaire EPPP » 22 janvier 2015 Luigi Moretti : « Fiscal Consolidation and Expenditure Arrears: Evidence from Local Governments’ Investments »

 Luigi Moretti

University of Padova

Fiscal Consolidation and Expenditure Arrears: Evidence from Local Governments’ Investments

(with P. Chiades, L. Greco, V. Mengotto and P. Valbonesi)

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Lieu: IAE de Paris – 7th floor
Date: Jeudi, 22 Janvier, 2015 – 14:0016:00

Speaker : Luigi Moretti (University of Padova)

Paper : Fiscal Consolidation and Expenditure Arrears: Evidence from Local Governments’ Investments

Luigi Moretti is Senior Research Fellow at the Department of Economics and Management of the University of Padova. He holds a PhD in Economics from the IMT Advanced Studies Lucca and a Laurea (summa cum laude) in Political Science from the University of Florence. His research interests focus on the empirical analysis of policy-relevant topics within the field of the institutional economics. His publications as well as more details about his CV and research activity are available at: https://sites.google.com/site/morettilg/

Authors : Paolo Chiades (Bank of Italy), Luciano Greco (University of Padova), Vanni Mengotto (Bank of Italy), Luigi Moretti (University of Padova), Paola Valbonesi (University of Padova)

Abstract : We study how investment-expenditure arrears can be induced by national policies aiming at fiscal consolidation. We first theoretically investigate how changes hardening local budget constraints (e.g., intergovernmental transfer cuts or rigidity in fiscal rules) can lead the local government to postpone the payments for public investments. In fact, local governments may use arrears as a non-conventional liability to alleviate their short-run financial distress. Then, we empirically assess our theoretical predictions, using accounting and financial reports of all Italian municipalities for the period 2003-2010. To face endogeneity concerns, we employ an instrumental variable approach that exploits the long-lasting impact of the structural reform of local public finance implemented at the end of 1970s. We find robust evidence that tighter local governments’ financial conditions determine larger arrears for public investment expenditures.

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