The devil in the details: Equalization in Italian municipal federalism

Abstract

This paper provides the first independent and reproducible assessment of the redistributive effects of Italy's municipal federalism, a system recognized by the Organisation for Economic Co-operation and Development as a sophisticated gap-filling model for reducing territorial disparities. The actual redistributive outcomes of these mechanisms remain largely unexplored. Therefore, the research question is: What is the impact of municipal federalism across Italian territories with respect to the horizontal and vertical components of equalization? To answer this, the paper reconstructs institutional background and conducts a quantitative analysis of a statistically representative sample of 79 provincial capital municipalities of Italy's Ordinary Statute Regions, covering the period 2015–2024. Findings reveal that the equalization goals established in the enabling federalist laws have not been achieved due to a series of operational details. While limited in scope, this study contributes to understanding of how technical implementation of municipal federalism may affect equity goals in federal systems. It may also open new avenues for future research into the political and administrative dynamics behind equalization mechanisms.

Points for practitioners

• Define and implement essential levels of services (LEPs): without clear LEPs, equalization formulas tend to assign larger needs, and therefore resources, to municipalities with higher expenditure or services.

• Increase the weight of vertical equalization transfers to reduce territorial disparities.

• Expand the quota of equalized fiscal capacity to better reflect true revenue-generating potential and address structural inequalities among municipalities.

• Eliminate hidden mechanisms that offset equalization gains: the presence of non-transparent technical adjustments undermines redistributive goals.