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Decentralizing Central Targets: Empirical Evidence from Italy

Decentralizing Central Targets: Empirical Evidence from Italy. M. A. Antonelli Università “La Sapienza”- Roma V. Grembi Università Cattolica - Milano. Paper Aims. Targeting local services (quality or quantity) Ex ante justification Ex post justification Crèmer e Palfrey (2000 e 2002).

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Decentralizing Central Targets: Empirical Evidence from Italy

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  1. Decentralizing Central Targets:Empirical Evidence from Italy M. A. Antonelli Università “La Sapienza”- Roma V. Grembi Università Cattolica - Milano

  2. Paper Aims Targeting local services (quality or quantity) Ex ante justification Ex post justification Crèmer e Palfrey (2000 e 2002)

  3. Basic expenditure decision model in two settings unitary setting decentralized setting In both settings the policy maker has to decide how to split budget among a bunch of good; Check with Italian unbalanced panel (2002-2007) with data at the municipal level on public childcare Outlines

  4. The modelunitary setting (1) Government: 1 level Two services x and y Quality is given. The policy maker maximize an utility function which is additive respect to the expenditure components (x and y) subject to a budget constraint Each component is weighed by a parameter (θ) which stands for political visibility one service

  5. Unitary setting (2) • Maximization problem: • θ is the weigh which is associated to each service from the politician perspective; • T = total revenues; • and represent expenditure level (funded by T)

  6. Unitary setting (3) • Solutions for the expenditure level and Funds are allocated according to θ

  7. Decentralized Setting Government: two levels Local government is in charge for the allocation of 2 services (x and y). The government set and expenditure target (quantitative terms) on x in order to assure a minimum level of the service

  8. Decentralized Setting • Capital expenditures for the supply expenditure are funded by the central level; • The local level is in charge for the current expenditure a supply expansion means and induced local expenditure; • The local level gets a central grant for its service management expenditures (based on several given parameters)

  9. Decentralized target • The current expenditures for x can be covered: • (local funding) • (central funding) • The target can be partially funded by with which represents target implementation due to the central grant • represents the institutional characteristics which rules the intergovernmental relationships among levels (impact on the politician decision to match the target)

  10. Maximization Problem • One-period model (myopthic politician) • XE and YE are the total expenditure of the local government for running local services x and y • Current expenditure for x are given by subject to: T+B= XE +YE

  11. Maximization problem • and are the local expenditure levels set in the unitary setting; • The maximization is on the expenditure variations characterizing the decentralized setting compared to the unitary setting • The expenditure levels are

  12. Statica comparata

  13. Empirical Part A supply expansion policy on a targeted service within a multilevel institutional framework depends both on local preferences (political visibility of the service) and on the institutional framework Attempt to assess how the local decisions on local service supply react to these elements A unique attempt to implement minimum level in Italy: childcare 2010 Lisbon target

  14. Italian institutional framework

  15. Italian Case Study Political visibility or local preferences Del Boca et al. 2005. Cultural differences in the demand for the service (e.g. Southern/Northern European States) Central role of the family in providing social services and financial support to its members The value families attach to the care of young children

  16. Dataset Unbalanced Panel 2002-2007 (max 761/4307) Delta Fund allocation criteria from the regional to the municipal level (FPS) Municipal fiscal dependency from transfers Political alignment (three-level setting) Tetha Applications per 0-3 resident population Number of private crèches enrolled to the official register run by the board of trade of Milan

  17. Achievement Rate=(Available Seats/Target Centrale)

  18. Methodology FE/RE Endogeneity problem local preferences Hard to talk of a supply induced demand… Instrumental Variable approach Hausman Taylor estimator HT is as IV estimator which relies for endogenous time invariant covariates on the mean of the exogenous time-varying covariates and for the endogenous time-varying their own averages

  19. Preliminary conclusions It is apparent that the local politicians choices are driven by local preferences Local preferences need to be balanced with institutional incentives It might be important that government act directly on the demand side to implement the supply of social policies which affect families’ life

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