Tax Autonomy and Distributive Policies of the Italian Municipalities: The Case of the Region Emilia Romagna

On the basis of a panel-data containing final budget-sheets and structural data of all the municipalities of the region Emilia-Romagna from 1998 to 2004, we study the evolution of the municipalities ’ public finances in a period of remarkable institutional changes related to fiscal federalism. The econometric analysis shows how the local tax setting is affected by the traditional local internal variables, by the political/fiscal orientation of the central governments ’ ruling coalitions and by the latter attitude to devolution of functions to lower level governments. Unexpectedly, the municipal governments exploit a form of fiscal illusion with their local electorate