Capital Expenditure Financing in Italian Municipalities: An Analytic Approach

Abstract

The economic literature finds a strong link between infrastructure endowment and economic growth. In recent years, the Italian infrastructure backwardness has become a central theme in the national political, economic and social debate. By definition, infrastructure investment implies the allocation of financial resources at present to obtain future advantages. The temporal gap brings up questions related to the financing mechanism, which is one of the most interesting themes of the debate.Traditionally, within the Italian system of derived finance and according to the inter-generational equity principle, Italian Municipalities (IMs) have financed investment expenditures by resorting to borrowing, for a minimum amount with the banking system, and for the most part with the Cassa Depositi e Prestiti S.p.A. (CDP). Unfortunately, this financing method has imposed heavy burdens on future budgets, in terms of refund of interest and capital. Moreover, in 2001, the reform of the Constitution (especially the part regarding Local Authorities (Las), Title V, Part II) has strengthened the political, administrative, and financial autonomy of LAs.