Distribution of transfers and soft budget spending behaviors: evidence from Italian regions

摘要

This paper examines empirically the strategic interactions among central and sub-central governments when incomplete information forces the subcentral government to form expectations about the amount of transfers that it will receive from the central one. The empirical analysis features a wide array of proxies for transfer expectations and uses an autoregressive modeling technique to estimate them on a sample of 20 Italian Regions for the 1995-2009 time interval. The analysis shows that transfer expectations are a quantitatively important component of local government spending, revealing evidence of soft budget spending behavior.