ITALY

Italy is a parliamentary democracy. According to its Constitution, which was ratified in 1947 and amended several times since then, the legislative power is vested in the bicameral parliament. The Italian Parliament is composed of the Chamber of Deputies and the Senate, which are both elected by direct universal suffrage every five years. Senators are elected on a regional basis and are assigned to each region proportionally according to their population. The Chief of State is the President of the Republic, elected for a seven-year term by an electoral college comprising the two chambers of Parliament. The Chief of the Government is the Prime Minister (Presidente del consiglio dei ministri), appointed by the president with the confidence of the parliament.

Italy is a unitary country, one and indivisible, which recognises and promotes local autonomy in its Constitution, and adapts the principles and methods of its legislation to the requirements of autonomy and decentralisation. In articles 114 to 133, the Constitution lays down the fundamental elements of local and regional self-government, counting four administrative government layers at the subnational level: regions, provinces, metropolitan cities and municipalities.

The decentralisation process started in 1990s, with law 142/1990 on the “Regulation of Local Autonomies”, and then with the 1997 Bassanini reform, which implemented the subsidiarity principle through different laws, referred to as “administrative federalism”. This reform significantly modified the fiscal, administrative and political framework at the subnational level. Law 59/1997, in particular, granted administrative powers to the regions. The most important piece of legislation on local authorities is the “Unified Laws on local authorities“ (“Testo Unico”), enacted by Legislative Decree No. 267 in 2000. In 2001 the constitutional reform enshrined the regions, provinces and municipalities in the constitution, placing them at the same level as central government. In 2009, a new framework law initiated the transformation of the country towards more federalism and as a “regionalised country”. In 2014, Law 56/2014 (“Delrio Act”) introduced several profound changes concerning the provinces and the metropolitan cities. In December 2016, a national referendum rejected the constitutional reform, which aimed to clarify the distribution of responsibilities between the central government and regions, abolish concurrent competencies and recentralise several responsibilities (e.g. transport, employment, public finance and taxation).

Despite recentralisation trends, differentiated autonomy is recognised under article 116 of the Constitution (paragraph 3), which led the regions of Emilia Romagna, Lombardy and Veneto to sign three preliminary agreements with the central government in February 2018 for more autonomy (“autonomia differenziata”). Six additional regions have then requested further forms of autonomy, without having signed pre-agreements with the government (Piedmont, Liguria, Tuscany, Umbria, Marche and Campania). The government launched two parliamentary commissions at end-2019 to examine the implementation of differentiated regionalism: the parliamentary commission for regional issues and the parliamentary commission of fiscal federalism (for financial autonomy).

TERRITORIAL ORGANISATION
MUNICIPAL LEVEL	INTERMEDIATE LEVEL	REGIONAL LEVEL	TOTAL NUMBER OF SNGs (2021)
7 904 municipalities (comuni)		20 regions (regioni)
Average municipal size: 7 535 inh.
7 904		20	7 924

OVERALL DESCRIPTION: Italy has a two-tier system of SNGs, comprising 20 regions and 7 904 municipalities, since the 2014 territorial reform (law no. 56/2014), which abolished the intermediate level of 107 provinces. The reform provided that provinces lose their status as elective bodies and became inter-municipal cooperation bodies (Ente Territoriali di Area Vasta).

REGIONAL LEVEL: Regions are composed of a regional council (Consiglio regionale) and a regional president (Presidente). Both are elected for a five-year term by direct universal suffrage. The regional president chairs the regional executive committee (Giunta regionale), which is the executive body of the region.

Regionalisation is asymmetric. Among the 20 regions, 15 have ordinary status (regioni a statuto ordinario – RSO, created in the early 1970s) and five have special status (regionai a statuto special – RSS, created in 1948). These five regions have larger legislative and financial autonomy due to their cultural and socio-geographical specificities (Aosta Valley, Friuli-Venezia Giulia, Sardinia, Sicily and Trentino-Alto Adige/Südtirol). The Trentino-Alto Adige/Südtirol region is further divided into two special-status provinces (“autonomous provinces“), Bolzano and Trento, with the same legislative powers as regions.

Italy’s regional organisation is marked by long-standing regional disparities between North-Eastern regions and Southern regions. The average size of regions is 2.7 million inhabitants, with Lombardia (close to 10 million inhabitants) being 80 times more populated than Vall d’Aosta (around 124,000 inhabitants). The already large regional economic disparities in Italy have slightly increased over the last 16 years. In Bolzano-Bozen, the level of GDP per capita was 2.7 times higher than in Calabria in 2020.

MUNICIPAL LEVEL: Municipalities are governed by municipal councils (Consiglio) and mayors (Sindaco) elected by direct universal suffrage for a five-year period. The city board (Giunta comunale) is composed of deputy mayors appointed by the mayor. In 2009, Rome was given a special legal status via Article 24 of the law 42/2009 (“Roma capitale”).The capital city has more competences than a regular city, specific provisions on fiscal and budgetary matters, and a deeper administrative and organisational autonomy. Rome is divided into 10 municipalities. Each one is considered to be a local authority (i.e. a municipality) on its own.

The number of municipalities has been stable since Law 142/1990, which imposed a minimum threshold on the creation of a municipality (10 000 inhabitants). However, the municipal level is fragmented. While municipal average size was around 7 500 inhabitants in 2021 (below the OECD average of 10 250 and EU average of 5 960), the median size was close to 2 410 inhabitants. Around 70% of Italian municipalities had fewer than 5 000 inhabitants and 45% fewer than 2 000 inhabitants in 2021. To reduce fragmentation, Law no. 56/2014 encourages municipal mergers through central government and regional financial incentives.

At the infra-municipal level, large municipalities, with a population of at least 250 000, can establish district councils (Circoscrizione di decentramento comunale). These bodies, formally recognised in 1976, sometimes have an elected committee and a president. Districts’ powers vary from one city to another. Their tasks can include include schools, social services and waste collection.

HORIZONTAL COOPERATION: Inter-municipal cooperation has been promoted with the implementation of the Law 142/1990, in particular through the creation of municipal unions (Unione dei Comuni) and mountain communities, and with Law 56/2014, which strengthened municipal unions and set up financial incentives for municipalities. Inter-municipal cooperation is compulsory for municipalities with fewer than 5 000 inhabitants. There were 562 unions in 2021. These structures do not have their own revenue. They receive revenue from their municipalities members, which is derived from taxes, tariffs and contributions that are due for the services conducted.

Metropolitan cities were introduced with Law 142/1990, which offered the possibility for the ten major cities of Italy to establish themselves as “metropolitan cities” (città metropolitana). However, several local initiatives remained unsuccessful (e.g. Bologna in the 1990s, Rome and Turin in the 2000s). Law 56/2014 ended two decades of gridlock over metropolitan governance reform and created the legal structure for the introduction of differentiated governance in ten major metropolitan areas (Bari, Bologna, Florence, Genoa, Milan, Naples, Reggio Calabria, Rome, Turin and Venice) and four additional cities in special regions (Catania, Messina and Palermo in Sicily, as well as Cagliari in Sardinia). Provinces were abolished as self-governing units in 2015, and transformed into inter-municipal cooperation bodies (IMCs), which also became “metropolitan cities” in each of the 14 metropolitan areas designated by the law. Metropolitan cities and provincial IMCs are headed by mayors, presidents and council members. The central state appoints a prefect (prefetto) in each provincial IMC as a representative of deconcentrated administrative units.

The regions and the two autonomous provinces have significant legislative and administrative powers since the 2001 constitutional reform, which gave them exclusive legislative power with respect to any matter not expressly reserved for the state.The central government is exclusively in charge of foreign policy, defence and social protection, electoral legislation, local government and fundamental principles. Regions are in charge of healthcare, transport, social services and housing, economic development, environmental protection, etc. They also share some responsibilities with the central government, resulting in significant overlap (concurrent responsibilities). RSS have additional duties in healthcare, school systems and public infrastructure. Regions may attribute “non-core” competences to their own local authorities through regional legislation. Local authorities are however not governed by regional legislation, except in the five special statute regions.

Following Law 56/2014, provincial tasks (transport, roads, environmental protection, among others) were transferred to regions, municipalities or new-intermunicipal bodies, depending on the region. Metropolitan cities were also devolved of some of the provinces’ former responsibilities, such as territorial planning, coordination and supervision of municipalities’ functions that are part of the metropolitan area.

Responsibilities of municipal and inter-municipal associations mainly involve public service provision and competences in urban management (town planning, environment), local road networks, culture and recreation, and social welfare. They are also responsible for deconcentrated administrative competences related to registries, elections, military service and statistics.

Main responsibility sectors and sub-sectors
SECTORS AND SUB-SECTORS	Regional level	Municipal level
1. General public services (administration)	Regional administration; Relations with provincial IMCs, metropolitan cities and municipalities; Management of EU funds	Internal administration; Land registry; Building and commercial permits; Delegated administrative services
2. Public order and safety		Local police
3. Economic affairs / transports	International and EU relations; Research and innovation; Regional transport; Civil ports and airports; Large-scale transport and navigation networks; Communications; Energy; Regional land; Agriculture;Tourism; Employment agencies	Local transport; Local roads; Local economic development; Planning, programming and regulation of commercial activities and of industrial and trade zones
4. Environment protection	Environmental protection	Environmental protection; Waste management; Waste water
5. Housing and community amenities	Housing	Town planning; Social housing; Water supply
6. Health	Health, through public healthcare agencies (construction and maintenance of hospitals, medical equipment, drugs, medical staff management, etc.
7. Culture & Recreation	Sports; Cultural activities	Sports; Cultural activities
8. Education	Education	Pre-school and primary education; School-related services
9. Social Welfare	Complementary social welfare	Social services and community assistance (poverty reduction policies)

Scope of fiscal data: regions and autonomous provinces, provincial IMCs, municipalities’ unions, municipalities, mountain development bodies and chambers of commerce. The sector also includes other local organisations such as tourism bodies, port authorities, regional health agencies, regional development bodies, public research hospitals, universities, and water services regulatory authorities.

SNA 2008

Availability of fiscal data: High

Quality/reliability of fiscal data: High

GENERAL INTRODUCTION: Articles 117 and 119 of the Constitution provide the framework for the SNG financing system and public finance coordination, granting SNGs fiscal autonomy on revenue and expenditure. Article 119 was modified in 2009 by the framework Law on financial federalism (No. 42/2009). The fiscal decentralisation and municipal federalism processes were slowed down by the economic and public finance crisis in 2008 and subsequent political changes. Despite reforms started in the 1900s to increase SNG revenue capacity and financial autonomy, SNG expenditure, particularly investment spending, are limited. However, as of 2022, a fiscal reform will reduce regional tax revenue to support households and companies in response to the pandemic.

Subnational government expenditure by economic classification
	Dollars PPP / inhabitant	% GDP	% general government	% subnational government
Total expenditure	6 508	15.5%	27.2%	100.0%
Inc. current expenditure	5 706	13.6%	26.3%	87.7%
Compensation of employees	1 715	4.1%	39.0%	26.4%
Intermediate consumption	2 001	4.8%	75.8%	30.8%
Social expenditure	1 234	3.0%	10.9%	19.0%
Subsidies and current transfers	584	1.4%	36.7%	9.0%
Financial charges	46	0.1%	3.2%	0.7%
Others	126	0.3%	42.2%	1.9%
Incl. capital expenditure	802	1.9%	35.7%	12.3%
Capital transfers	175	0.4%	15.5%	2.7%
Direct investment (or GFCF)	628	1.5%	56.0%	9.7%

EXPENDITURE: The gradual but deep decentralisation process led to a strong increase in SNG expenditure. In 2020, Italian SNGs spending accounted for 15.5% of GDP and 27.2% of public expenditure. However, these figures remain below the OECD average (17.1% and 36.6% respectively) and the EU27 average (18.3% of GDP and 34.3% of public expenditure). Regions represented close to 68% of SNG expenditure, while municipalities represented 30% of total SNG expenditure with provincial IMCs and metropolitan cities representing the remaining. SNG staff expenditure accounted for 39.0% of public staff expenditure in 2020, which is below the OECD and EU27 average (respectively 61.2% and 53.6%).

DIRECT INVESTMENT: SNGs play an essential part in public investment. SNG direct investment accounted for 56.0% of public investment in 2020, above the OECD (54.6% in 2020) and the EU27 averages (54.4%). The bulk of direct investment is made by regions. Since the crisis, consolidation measures and tightening of constraints under the Internal Stability Pact led SNG investment to sharply decline and it has not yet fully recovered. SNG direct investment accounted for only 1.5% of GDP in 2020, which is below the OECD and EU27 averages (1.9% and 1.8% of GDP).

In order to sustain local investment, the 2020 budget law further reinforces the investment measures for local governments. Accordingly, municipalities will receive up to EUR 500 million annually for 2020-2024 to finance small works related to energy efficiency and sustainable territorial development. The state will also provide municipalities with contributions for the implementation of urban regeneration projects, investments in cycling, the contruction and renovation of nurseries, executive planning and social infrastructure in some municipalities (up to 2034). Provincial IMCs and metropolitan cities will receive subsidies for extraordinary road and school maintenance. Under its 2020 Stability Programme, the central government also created a territorial investment fund, which will amount in up to EUR400 million per year from 2025 to 2034.

Public-private partnerships (PPPs) are commonly used in Italy to finance infrastructure projects, notably by regions to fund the building of new hospitals. Contractual PPPs are mainly used for infrastructure projects, while institutional PPPs are commonly used for managing public services at the local level. Regional and local authorities are supported by the Ministry of Infrastructure and Transport with technical and administrative assistance for the planning and approval of infrastructure projects. The Ministry also supervises the construction of infrastructure with the cooperation of the regions. In addition, the Supreme Council for Public Works can issue, upon request, an opinion on the projects or regional and local authorities.

Subnational government expenditure by functional classification
	Dollars PPP / inhabitant	% GDP	% general government	% subnational government
Total expenditure by economic function	6 219	13.8%	-	100.0%
1. General public services	1 073	2.4%	25.1%	17.3%
2. Defence	0	0.0%	0.0%	0.0%
3. Security and public order	96	0.2%	11.7%	1.6%
4. Economic affairs/transports	695	1.6%	29.1%	11.2%
5. Environmental protection	361	0.8%	90.9%	5.8%
6. Housing and community amenities	163	0.4%	56.0%	2.6%
7. Health	3009	6.7%	57.2%	48.4%
8. Recreation, culture and religion	120	0.3%	32.3%	1.9%
9. Education	385	0.9%	20.7%	6.2%
10. Social protection	317	0.7%	2.6%	5.1%

Health is by far the primary area of SNG spending, accounting for almost half of SNG expenditure (48.4%) and 6.7% of GDP in 2019 (vs 18.0% of public expenditure and 2.9% of GDP on average in the OECD). This share is expected to grow in the coming years, as a result of the pandemic but also of the ageing population (the old-age dependency ratio is forecasted at 67% by 2050 from 39% in 2020). Health accounts for more than 80% of regional spending, which limits their budgetary flexibility as a large share of their spending is earmarked to healthcare transfers. Regional healthcare spending is subject to the rules under the Pact for Health, an agreement with a three-year horizon between the state, regions and the autonomous provinces of Trento and Bolzano. Accordingly, regions are required to ensure a balanced budget in the health sector by funding any deficit. In case of deviation from balance, automatic corrective measures are implemented (e.g. additional regional tax on indivdual income).

Health is followed by general public services (17.3% of SNG expenditure in 2019) and economic affairs/transport (11.2%). The share of social protection (5.1%) and education (6.2%) is lower than the OECD on average (14.% and 24.3% respectively) as these two sectors remain primary functions of the central government, in particular regarding staff management. SNGs are also responsible for the large majority of overall public spending in the areas of environmental protection (90.9% of public spending in 2019) and housing and community amenities (56.0%).

Subnational government revenue by category
	Dollars PPP / inhabitant	% GDP	% general government	% subnational government
Total revenue	6 419	15.3%	32.2%	100.0%
Tax revenue	1 718	4.1%	14.1%	26.8%
Grants and subsidies	3 905	9.3%	-	60.8%
Tariffs and fees	677	1.6%	-	10.6%
Income from assets	87	0.2%	-	1.4%
Other revenues	33	0.1%	-	0.5%

OVERALL DESCRIPTION: The 2001 Constitutional reform and the fiscal federalism law No. 42 of 2009 set a milestone for Italy in its gradual move towards fiscal decentralisation. The objective of the reform was to increase SNG fiscal autonomy, efficiency and accountability, and to guarantee an adequate level of subnational services across the country. It led to an increase of both own-sources and shared taxes with the aim of covering spending obligations. It also led to the replacement of a portion of central government grants by tax revenue equalisation payments. Under the national recovery and resilience plan, the central government introduced a new fiscal reform in order to sustain regional economies and to enhance tax collection mechanisms (see below). This will increase regional dependency on central transfers despite continuous efforts to promote regional fiscal autonomy.

In 2020, intergovernmental transfers remained the primary source of revenue of SNGs. The share of transfers increased sharply from 47% in 2016 to 60.8% in 2020 (vs. 41.2% on average in OECD countries in 2020) as the central govenrment heavily supported subnational govenrments through transfers during the pandemic, notably to cover regional health spending. As a result, the contribution of tax revenue to SNG revenue was well below the OECD average in 2020 (42.4% respectively), while other sources of revenues (tariffs and fees; 10.6%) are close to the EU27 average (10.3%) and slightly below the OECD average (13.3%). In 2020, municipalities represented 30% of total SNG revenue, provincial IMCs and metropolitan cities a tiny 3% and regions 67%.

TAX REVENUE: In 2020, tax revenue accounted for 4.1% of GDP (vs 7.2% in the OECD) and 14.1% of public tax revenue (vs 32.3% in the OECD). SNG tax revenue comprises both shared and own-source taxes.

Regarding shared taxes, municipalities receive a share of the personal income tax (compartecipazione - IRE), but they do not have control over it. The central government also shares several national taxes with the regions (RSS), notably the PIT, the corporate income tax (CIT), excise duties and stamp tax.

Italian regions have several own-source taxes. The most important is a regional tax on productive output (imposta regionale sulle attività produttive - IRAP). The IRAP is a tax on economic activities, whose basic rate is 3.9% since 2015. The regions have the ability to increase or reduce the rate of the IRAP and to establish exemptions. Other regional taxes include a regional tax on vehicles, a regional tax on waste landfills and waste incineration plants, as well as a regional surtax on the PIT (addizionali regional all - IRPEF), which varies from 0.7% to 3.33% depending on the region. As of 2022, a fiscal reform will reduce the PIT, revise the rates of the regional and municipal surtax on PIT and add exemptions to the IRAP for some categories of employment (notably for self-employed persons). The central govenrment will partially compensate regions with EUR 8 billion in transfers for their healthcare services, since the IRAP represents the main source of financing for the health sector. A supplementary EUR 76 million transfer will further compensate regions that applied a higher IRAP rate. Despite the reform, tax revenue should continue to represent the bulk of regional revenue.

The main source of municipal tax revenue is the recurrent tax on property (25.8% of SNG tax revenue in 2020). It was reformed in 2013 with the creation of a single municipal tax (Imposta unica comunale - IUC), which incorporates three taxes: 1) the IMU (imposta municipale propria), which is a real estate tax paid by owners of secondary residences only; 2) the TASI or “tax for indivisible services”, which is a supplementary real estate tax, supposed to meet the expenses for the delivery of lighting, street cleaning, green areas and services that are provided equitably by municipalities to all citizens; and 3) and the TARI (waste tax) which must cover the cost of the service of collection and treatment of waste. Both the IMU and the TASI were repealed on primary residences (except luxury homes) in 2014 and 2015. A reform of cadastral values is still being discussed to increase the property tax base and fully exploit the potential of the tax. In 2020, the recurrent property tax accounted for 1.1% of GDP, close to the OECD average (1.0% of GDP). Municipal own-source taxes also include a surtax on the PIT (imposta addizionale comunale), with some municipal leeway on the rate, a tax on advertising and a touristic tax.The threshold of the rates on the PIT surtax will be revised as part of the fiscal reform.

GRANTS AND SUBSIDIES: There are two separate systems of grants, one for the regions (RSO) and one for the municipalities. The 2001 constitutional reform and Fiscal Federalism Law of 2009 set the principles for both systems. The 2009 Law mandates that officials use both standard expenditure needs and fiscal capacity when calculating the allocation of equalisation transfers. This new equalisation system is based on covering the costs of essential public services and equalising tax-raising capacities.

At the regional level, the equalisation fund guarantees the coverage of essential public services (healthcare, education, social assistance) in regions with low tax revenue. The Regional Health Fund is the most important component. It is allocated on a slightly modified per capita basis, upon agreement reached among regions and the central government within the State-Regional Governments Conference. The central government increased the Fund from EUR 114 billion in 2019 to EUR 118 billion in 2020 and around EUR 121.5 billion in 2021 to support region’s finances during the pandemic.

At the municipal level, the Municipal Solidarity Fund (Fondo di Solidarieta’ Comunale - FSC), created by law no. 228/2012, is the most important equalisation tool. Managed by the Ministry of the Interior, it is endowed by a share of the local property tax, as well as by contributions from the central government. Grants consist exclusively of general-purpose equalisation grants, allocated according to a complex formula taking into account both fiscal capacity and expenditure needs to ensure the provision of the “fundamental functions” of municipalities. The rest of the FSC continues to be distributed on the basis of the historical level of transfers to individual municipalities. Since the 2014 Stability Pact, a portion of the FSC has been used as incentives in favour of the merger of municipalities. Merged municipalities may receive grants that are up to five times bigger than regular municipalities, for a period of five years at the most. In 2020, the first instalment of the FSC was anticipated to provide municipalities with leeway during the pandemic. The Fund is annually increased. Italian municipalities may also receive ad hoc earmarked transfers targeted to specific needs, including for investment projects.

OTHER REVENUE: Italian municipalities may collect a diverse range of fees and charges on installation of advertising (CIMP), occupation of public spaces by economic activities (TOSAP and COSAP) and to cover the cost of some public works by the municipality (ISCOP) or collection of traffic and parking fines. Regions are also entitled to collect charges and fees (e.g. on concessions made on regional public domain goods, on the right to study at the university, on phytosanitary activities, etc.). The share of tariffs and fees in SNG revenue is lower than in the OECD on average (10.6% vs. 13.3% in 2020).

SNG may also collect revenue from business, commercial activities and revenue from the ownership of property (sale of movable and immovable property), interests and dividends from state-owned companies. Some decrees have been adopted, particularly concerning the attribution to the municipalities of a portion of the state’s property ("public property federalism").

Subnational government fiscal rules and debt
	Dollars PPP / inh.	% GDP	% general government debt	% SNG debt	% SNG financial debt
Total outstanding debt	4 708	11.2%	6.1%	100.0%	-
Financial debt	3 132	7.5%	4.2%	66.5%	100.0%
Currency and deposits	0	-	-	0.0%	0.0%
Bonds / debt securities	308	-	-	6.5%	9.8%
Loans	2 825	-	-	60.0%	90.2%
Insurance pensions	0	-	-	0.0%	-
Other accounts payable	1 575	-	-	33.5%	-

FISCAL RULES: In 1999, Italy introduced an Internal Stability Pact (Patto di Stabilità Interno - ISP) to ensure that the financial situation of central and regional governments is consistent with Italy’s obligations under the European Union fiscal rules. ISP has been progressively modified and, since 2001, municipalities are also subject to ISP. Updated and approved yearly, it sets targets for their fiscal balances, limits on expenditure growth, as well as borrowing limits. Since 2003, a system of sanctions has been set up for non-complying municipalities, in the form of transfer cuts and freezes on hiring local staff. The Constitutional Act No. 1/2012 introduced the principle of balanced budgets in structural terms and bans the use of debt to finance the deficit. The law provided regions with leeway to compensate for temporary imbalances among the municipalities located in their territories. The Parliamentary Budget Office (Ufficio parlamentare di bilancio - UPB), whose autonomy is referred to in the 2012 Constitutional Law, has the mandate to analyse and monitor public finance developments, including at the subnational level, and evaluate compliance with budget rules.

Since 2019, the Constitutional Rules No. 247/2017 and No. 101/2018 simplified the rules of public finance, setting that regions, the autonomous provinces of Trento and Bolzano, metropolitan cities and municipalities must contribute to the objective of net borrowing at the national level, in line with the ISP. Accordingly, from 2019, all SNGs must comply with the budget balance rules at the individual institution level (i.e. non-negative final and current account and non-negative final cash balance) and at the sector level. For RSO, the rules were postponed to 2021 following the agreement of the State-Regional Governments Conference of October 2018.

DEBT: Regional and local use of debt is limited to financing investment expenditure (“Golden Rule”). SNG borrowing must be accompanied by amortisation plans that do not exceed the useful life of the investment. There are additional prudential rules on new borrowing (debt service), which are included in the provisions of the annual finance law, such as the respect of a balanced budget for all entities of the region as a whole. Municipalities and regions may issue bonds according to specific prudential rules (below 20% of operating revenue net of healthcare funds for regions; and interest below 10% of operating revenue for local governments).

SNG outstanding debt as a share of GDP and public debt is below OECD average (27.9% of GDP and 20.2% of public debt) as well as the EU27 average (13.9% of GDP and 15.4% of public debt). The majority of SNG financial debt is in the form of bank loans largely issued to domestic financial institutions, in particular the Italian public bank Cassa Depositi e Prestiti. The share of intergovernmental loans has increased over the past years due to favourable interest rates and long maturities, while the use of bonds has declined from around 30% in 2006 to 6.5% of SNG debt in 2020. In 2020, however, Italian SNGs remained a large group of issuers among European regions and municipalities, after Germany, Spain and French.

TERRITORIAL MANAGEMENT OF THE CRISIS: Italy was one of the first country hit by the COVID-19 crisis in Europe and the first to implement a strict national lockdown among OECD countries. The pandemic highlighted the structural weaknesses of the healthcare system, with an insufficient number of beds for intensive care and a declining number of doctors. This capacity shortage follows years of cuts in healthcare expenditure in Italy, which explains the early reaction of the govenrment to avoid an overburden of the healthcare system.

While decisions were mainly taken at the central level, subnational governments were involved in the implementation of the measures. Regions and municipalities still benefitted from a certain degree of flexibility to implement restriction measures earlier or stricter, depending on the local sanitary situation. According to the Constitution (art. 172 and 120), the central government has exclusive competences and can replace the powers of the regions in case of global pandemic, such as with the Covid-19 crisis. However, the legislative power remains at the state and regional levels (principle of loyal collaboration), which create competing competences between the state and the regions as depicted under article 117. This lack of clear responsibilities triggered overlapping in decision-making as well as constitutional litigation. Many regions issued decisions through orders that overcame the central government’s decisions to deal with the Covid-19 crisis.

Despite the mandate of the Department of Civil Protection, created in 1992 to ensure the coordination of civil protection activities in emergency situations with the regions, the pandemic underlined a lack of vertical coordination. By contrast, horizontal coordination was reinforced at the central level with the creation of an extraordinary Covid-19 Commissioner in March 2020 and the Council of Ministers to coordinate inter-ministerial decisions. A coordination committee has also been established at the regional level between representatives of regional health agencies and medical pratictionners.

EMERGENCY MEASURES TO COPE WITH THE CRISIS AT THE DIFFERENT LEVELS OF GOVERNMENT: Subnational governments implemented some support measures during the pandemic. Italian regions adopted around EUR 7 billion of measures, of which 70% was for companies and SMEs and 30% for welfare and households. Measures mostly aimed to support companies‘ liquidity and to protect vulnerable households.

Several measures were taken by the central government to help SNGs deal with the crisis, as it is the only level of government able to run into debt. Among these measures, a specific fund of EUR 3.5 billion was established in May 2020 (increased by EUR 1.67 billion in August 2020) to alleviate the loss of local revenue. Similarly, a EUR 1.5 billion Fund (raised by EUR 2.8 billion in August 2020) was allocated to regions and autonomous provinces to compensated their loss in tax revenue and increased expenditure in health, social services and education. The central government also adopted measures to alleviate subnational deficits. It established a EUR 12 billion Fund, including Local Sanitary Territorial Units, to pay the debt of SNGs. Mortgages and loans of regions and municipalities were renegotiated or postponed.

IMPACTS OF THE CRISIS ON SUBNATIONAL GOVERNMENT FINANCE: The COVID-19 crisis heavily impacted territorial economies and employment, with high disparities among the industrialised Northern regions and the poorer ruiral Southern regions. The impact of the pandemic on SNG finances also largely varied.

Subnational revenue was stable in 2020, as the increase of transfers from the government (+9.9%) compensated partially the drop in tax revenue (-11.2%) and in tariffs and fees (-14.3%). This figure varied among the levels of governance. Municipal revenue fall was mostly driven by the drop in tariffs and fees resulting from the containment measures. The loss of PIT was less significant as it was covered by central government’s transfers. Southern municipalities were less affected as their revenue structure relies more on transfers. At the regional level, the decline in revenue was lesser. The fall was mainly due to the regional tax on production activities as payments from companies were postponed to 2021.

On the expenditure side, SNGs slightly increased their spending in 2020 compared to 2019 (+1.7%), with large disparities among levels of government. At the municipal level, the rise in spending for school facilities was partially compensated by savings related to the closure of facilities (e.g. reduced staff costs, services for gas and water). By contrast, regions‘ expenditure largely increased due to their responsibilities over the healthcare sector (e.g. purchase of medical equipment). Regions also supported companies and households during the pandemic, which increased their expenditure by around EUR 7.3 billion in 2020, of which EUR 4.5 billion came from European Funds and EUR 2.9 billion from their own resources.

Subnational financial debt slightly decreased in 2020 (-2.1%), which resulted in a decrease in bond issuance (-9.3%), while the general government debt increased by 8.4% as a result of the support package and increase in transfers during the crisis.

ECONOMIC AND SOCIAL STIMULUS PLANS: The Italian National Recovery and Resilience Plan (NRRP) is based on EUR191.5 billion of grants and loans from the EU Recovery and Resilience Facility (RRF). This will be combined with the resources of the national Complementary Fund, endowed with EUR30.6 billion additional resources. Around 70% of the funds will be dedicated to investment projects, with a focus on environment, research, training, welfare and health. The cross priorities underpin the investments, reforms and projects under the Plan and have the stated goal of reducing disparities among regions, generations and genders in Italy. Subnational governments should manage around 35% of the funds, which would largely increase their annual investment spending. The central govenrment plans to reinforce central monitoring and technical support for the implementation of investment and reforms, to simplify procedures and to accelerate the disbursment rate.