Title: Deficit control and fiscal austerity in the EU: time to consider the local impact

Authors: Enrico Guarini; Anna Francesca Pattaro

Addresses: Department of Business Administration, Finance, Management and Law, University of Milano-Bicocca, Milan, Italy ' Department of Economics 'Marco Biagi', University of Modena and Reggio Emilia, Modena, Italy

Abstract: The recent public and academic debate in Europe about the extent to which fiscal austerity can successfully reduce deficits and public debt, while not inhibiting economic growth, has primarily taken place at the level of national governments. In contrast, differences in the implementation of EU debt and deficit rules at the local level and their social and political consequences within member states have received much less attention. In this paper, we use the case of Italy to reveal the potential impact of EU fiscal austerity at the local level. To achieve this goal, the resource dependence theory is helpful both to understand intergovernmental relations and to explain much of the local impact of fiscal austerity. Our analysis shows that balancing the budget at the central level cannot neglect how a balanced budget affects local governments' financial management. In Italy, this process has led to a severe reduction in public investments at the local level and to a lack of political accountability. In terms of policy implications, this paper suggests that the EU's policy makers should consider local issues within the domestic settings more seriously and that they should not neglect critical situations.

Keywords: deficit control; fiscal austerity; fiscal governance; fiscal rules; public financial management; local government; resource dependence theory; RDT; European Union; EU; Italy; intergovernmental relations; public investment; public services; political accountability; budget deficit; public debt.

DOI: 10.1504/IJPSPM.2016.079717

International Journal of Public Sector Performance Management, 2016 Vol.2 No.4, pp.348 - 369

Available online: 08 Oct 2016 *

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