The evolution of regional financing system: autonomy and development trade-off

Devolving function processes, implemented in Italy as well as in other countries, are increasing fiscal autonomy and cutting all the forms of still existing grants. Several authors (Prud'homme, 1995) highlight that a wider tax autonomy of sub national governments might increase the economic gap at local level and give rise to a less economic growth of the lower fiscal capability areas. Following this thesis, the paper points out the negative effects both in terms of economic growth and of widening local economic differences as consequence of the evolution of the Italian regional financing system over the years 1990-2006. As a result the autonomous revenue increase significantly while the grants (block and conditional) were cut. Being the trade off between tax autonomy and grants reduction both static and dynamic it seems that the application of the article 119 of new V Title, expanding the tax autonomy while reducing the national grants - specially the conditional ones'- might increase the already existing economic gap.