Budgetary coordination of Local Government fiscal targets in the quest for austerity: the “Regional Stability Pact” arrangements in Italy

Local Governments (LGs) worldwide are struggling with public finance problems, such as excessive public debts and lack of resources for additional community services. In addition, a request of financial rationalization and fiscal stability is pending from international institutions (Treaty on Fiscal Responsibility, 2012). Depending on government debt, every EU country established different domestic inter-governmental fiscal arrangements in order to cope with EU fiscal targets. This paper aims at understanding how these arrangements have been framed in a highly indebted setting and how they have influenced accounting, accountability and public financial management at sub-national level. This is accomplished by presenting the findings of the Italian case. The research is focused on the budgetary coordination of LGs fiscal targets related to the regional “Stability Pact” arrangements in Italy. The study shows alternative mechanisms for financial coordination ranging from a mere ‘clearing-house’ model to a proactive model enhancing fiscal accountability of municipalities. Anyhow, rigid fiscal rules at the national level seem to have shaped a sort of uniform and top-down cut-back framework leaving unanswered most local needs. Finally, the paper aims at contributing to the debate about the new directions and challenges for public sector accounting and accountability. General implications for effective design of intergovernmental accounting arrangements are briefly discussed.