Municipal Finance in Southern Italy: Structural Criticalities and the Effects of the Pandemic Crisis

Southern municipalities suffer, historically, from structural weaknesses that make them unable to provide services at the same level of their northern counterparts: they have a smaller tax base, not sufficiently compensated by the transfer system, and less capacity of collecting revenues. They suffered more than the northern ones the period of heavy budget consolidation in 2011–2016 because their structure of spending is more rigid, and because they more heavily depend on national transfers. Thanks to the European structural funds, capital spending followed a different path and its per-capita level is still somewhat larger in the south than in the north of the country. The huge increase in central government grants during the 2020–21 period, to compensate for the revenue losses and the higher expenses related to the pandemic crisis, favoured a temporary improvement in their budgetary conditions, but as the effect of these massive transfers fades out, the structural problems are re-appearing. Looking ahead, the difficulties of the southern cities can only be overcome through the completion of the federalist reform process with: (a) the definition of the essential levels of service (and the related expenditure needs) to be provided by the municipalities for the fundamental functions; (b) the restoration of a true tax autonomy and the strengthening of the collection capacity; (c) the implementation of an equalisation system that takes full account of the differences in spending needs and fiscal capacity.