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1 Is the Italian Public Debt a Particular IS THE ITALIAN PUBLIC DEBT A PARTICULAR CHANNEL OF REGIONAL REDISTRIBUTION? A PILOT STUDY BASED ON THE TRANSFER APPROACH Veronica Polin University of Verona Francesca Tartamella Eurostat 1. INTRODUCTION In all industrialized countries, public intervention influences, albeit with different intensity and extent, the distribution of incomes and the allocation of risk mitigating the consequences of some negative phenomena. As highlighted by the economic literature (for example, Sandmo, 1999), public action can determine redistributive effects, both interpersonal and/or intrapersonal. The first type of impact, mainly justified on grounds of fairness, comes from a transfer of resources from high-income to low-income individuals. The second type of impact, justified on the grounds of efficiency or on the presence of merit goods, is associated with a redistribution of income during the lifecycle in order to make the path of individual consumption consistent over time and in different states of the world. The redistributive action of the state, however, can be analysed at the local level. This latter type of redistribution, defined in the literature as interregional (Ruggeri, 2009), is of particular interest especially where there are important economic and social differences across regions. The redistributive flows between different areas of a country are more or less explicit, depending on the adopted model of territorial organization of the revenues and expenditures—i.e. depending on the degree of decentralization. Measurement of territorial redistribution is usually based on calculation of the so-called fiscal residuals (Pica, 2010; Ruggeri and Yu, 2003). The fiscal residuum is as a measure of the difference between the contribution made by the inhabitants of a geographical area (typically a region) to finance the public sector (primarily through the payment of taxes) and the benefits that they receive from such action (especially in the form of public services). This indicator allows representation of the surplus or the deficit of a territory to identify the contribution of each area to the overall result of the public budget and to highlight the total amount of redistribution between areas of the country Some recent empirical studies (Ambrosiano et al., 2008; Arachi et al., 2010; Carniti and Dal Bianco, 2015; Cerea, 2013; Eupolis, 2014; Ferrario and Zanardi, 2009; Giannola et al., 2016; Petraglia et al., 2017; Pisauro, 2009; Staderini and Vadalà, 2009) have attempted to make explicit the size and the direction of the interregional redistribution operated by the public sector in Italy1 by estimating the fiscal residua of different regions. Despite some important methodological differences (categories of expenditure and revenues included, covered time spans, data sources and computation methods),2 all studies find considerable variability of fiscal residua (both in size and in sign), indicating the presence of a significant redistribution between regions. Giannola et al. (2016) found that the overall long-term regional redistribution amounted, on average, to around 20–40 per 1 The discussion on interregional redistribution operated by the public sector in Italy has a long history. For a detailed survey of previous empirical studies, see Giannola et al. (2016). 2 In Italy, there are two main datasets used for estimating fiscal residua. They differ for the types of criteria applied for the regional reclassification of fiscal revenues and public expenditures. For a detailed description, see UPB (2017). 1 cent of GDP and its magnitude has increased throughout the period 1951–2010 in both absolute and per capita terms. Regarding the direction of regional flows, the Southern regions show, according to empirical evidence, negative fiscal residua—i.e. the residents benefit from resources provided by the rest of the country (expenditures exceed revenues collected there). Conversely, all the larger regions of the North (Piedmont, Lombardy, Veneto and Emilia Romagna) and Lazio have a positive fiscal residuum, meaning that the region gives up part of its resources to finance expenditures elsewhere. The sign of fiscal residues also seems to depend on the size of the region: small regions tend to have a negative sign. The same conclusion is true for those regions with special statute. The variability of redistribution across regions reflects the significant gaps in economic development, in the tax capacities and the progressiveness of the Italian tax system, and the application of a particular social justice scheme (Ambrosiano et al., 2008; Giannola et al., 2011, 2016; Pisauro, 2009).34 In Italy, taxes are mainly based on the regional ability to pay (income, wealth and consumption), while an important part of public spending is devoted to ensure to all regions certain social rights recognized as fundamental to all citizens, such as the rights to healthcare and education. Regional redistribution aims at offsetting long-run regional income differentials and at diminishing inequalities in publicly provided services, but it may also buffer the impact of short-run shocks on a region’s income and consumption. Some empirical studies (Arachi et al., 2010; Decressin, 2002; Petraglia et al., 2017), using a net fiscal flows approach, investigated this interregional risk-sharing function of government intervention in Italy in different periods. Their results show that overall public primary expenditure and current expenditure mitigate asymmetric shocks between regions, while the capital components of public expenditure and fiscal revenues (taxes and contributions) seem to have a pro-cyclical effect, amplifying the impact of shocks. Most of the empirical literature on Italian regional net fiscal flows does not include in the fiscal residua estimation the amount of interest payment on public debt.5 This omission is usually motivated by the practical problems involved in the allocation of interests among regions (Giannola et al., 2016; Petraglia et al., 2017; Staderini and Vadalà, 2009). However, as is known, the Italian context is characterized by high and persistent public debt (Francese and Pace, 2008), and the issue of its potential territorial distributional effects is particularly relevant for a critical analysis of the role of the public sector. More specifically, how to finance public intervention could have an effect on income distribution (Amoureux, 2014) and could influence the size and the sign of interregional redistribution, even if in an involuntary way.6 We believe that this type of analysis is needed to ensure the necessary transparency of public sector activity and to verify the social and spatial sustainability of the burden of Italian public debt. In this paper, we try to fill this gap by estimating the interregional impact of public expenditures on interest in Italy over a long period of time. Our exercise focuses only on this type of regional flow and does not provide new estimations on the overall fiscal regional redistribution. We investigate the regional effects of the 3 Buiatti et al. (2014) analyse the impact of political aspects in the regional fiscal flows (taxes and transfers). Padovano (2012) focuses on economic and political drivers of interregional transfers. 4 It is important to point out that a simple analysis of the estimates of the fiscal residuum does not allow distinguishing between the main underlying causes of regional variability of balances. The fiscal residuum captures, in fact, the overall redistribution exerted by the public agent, but it does not provide any useful information to understand the rationale of the differentials (Staderini and Vadalà, 2009). 5 To our knowledge, Giannola and Scalera (1995) include the financial flows connected to the payment of interest on government debt in their regional empirical analysis. 6 See Salti (2015) for a survey of the distributional impact of public debt. 2 interest expenditure on Italian government securities considering two dimensions: the financial resources collected at the local level to finance the annual cost of public debt (both external and domestic) and the transfers received by each region based on the holders of domestic Italian public debt. We evaluate this impact by measuring the redistribution carried out within institutional sectors and at the regional level adopting the so-called transfer approach (Anselmann and Kraemer, 2016). We are aware that the main problem with the transfer approach is the fact that it is based on partial analytical consideration of the regional distributional impacts of public debt, and for this reason it is not able to estimate the overall regional effects of Italian public debt. To capture macroeconomic effects in their entirety, the empirical analysis requires the evaluation of the impact of all public expenditures financed with debt and assumptions about counterfactual scenarios. Anyway, we believe our empirical study represents an interesting and preliminary exercise. The rest of the paper is structured as follows. Section 2 analyses trends and the composition of interest expenditure on Italian public debt securities. Section 3 presents some evidence on the regional redistribution related to sovereign bonds in the period 2000–2015, using each region as unit of analysis. Section 4 focuses on Italian households as a particular case study: for this type of domestic investor in government securities, the role of taxpayer and of beneficiary overlap. Section 5 contains some concluding remarks. 2. INTEREST EXPENDITURE ON ITALIAN
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