Local government efficiency and economic growth: The Italian case

This paper builds on the empirical literature that analyses the relationship between government efficiency and economic growth by investigating the link on a sample of about 3800 Italian municipalities. While the correlation has been explored at country or regional level, empirical studies at municipal or city level are virtually absent. This is a severe limitation given the numerous fiscal decentralization reforms that took place in many European countries over the last few decades aimed at increasing the autonomy and responsibilities of subnational government. Estimation results show that government efficiency, when instrumented, is conducive for economic growth. The effect is larger for low populated municipalities, for those located in the South of Italy, and in more peripheral areas. Results are robust to alternative measures of efficiency and growth.