1. C ONDITIONAL INTERGOVERNMENTAL TRANSFERS IN I TALY AFTER THE CONSTITUTIONAL REFORM OF 2001 Giorgio Brosio* Stefano Piperno** DULCIS In FUNDO ??

2. Background Constitutional reform of 2oo1 eliminates earmarked/sector grants by non mentioning them. Detailed list of revenue tools does not include them. No doubt about interpretation. Paid tribute to subnational autonomy, to the European Charter, etc.

3. Background  At the same time, some constitutional provisions create room for future earmaking through:  Equalization grants for basic functions;  Grants for regional development; General emphasis on equality of entitlements and rights across the whole nation.  Grants from Regions to local municipalities

4. Block grants for basic functions Constitution distinghishes between: Basic functions, impacting on citizenship rights: health, education (not yet fully devolved), social protection, and municipal functions (still to be defined). Will account for 80% of total subnational expenditure. Other functions: 20%.

5. Block grants for basic functions  Two distinct equalization systems will apply.  For basic functions: “essential levels”, standard costs and fiscal capacity.  Targeted to ensure equality of levels of service provision across the country.  For other functions: fiscal capacity only.

6. System for determination of block grants for basic services Essential levels of service provision Standard costs Gross block grantm Minus: notionally assigned revenues = Net block grant

8. Problems with implementation  Alternative in both 3 and 4 is between: a) to accept regional autonomy and to let voters (and other political mechanisms) solve the issue (more in line with the constitution). b) to intervene with controls and penalties.  Propensity among scholars and central government officials is to opt for the second option.  hard implementation,  curtailment of grants might increase efficiency, but it would make Regions even less compliant with levels.

9. Problems with implementation  Implementation would even be harder in political economy terms, considering the large number of non efficient and non compliant Regions and local governments that will pressure simply for increases in financing; cross-cutting parties, areas, etc.  Increase of total size of block grants likely.  May depend on sector depending on relevance of sectors on national government electoral fortunes.

10. Centralization/decentralization of policies D is a centrally provided good H is a regionally provided good P c (  D,  H), P c the probability of re-election of the central government  and  are the discount factors, assigned to the arguments, with 0 ≤ ,  ≤ 1. When  =  the system is completely centralized W hen  >  the system is decentralized When  = 0 the system is totally decentralized

11. Implications for block grants My guess is that: For health, education  = , hence problems will continue for municipal services  >  possible containment of block grants. But will this system ever be implemented ?