Since 2010 the Italian central government has embarked on a challenging program of fiscal consolidation, which is hugely affecting sub-central government finances. Sub-national governments are involved in reaching general government fiscal targets through reduction in central government transfers, new fiscal rules, borrowing and expenditures limits. These restrictions risk to put the fiscal federalism reform to a standstill – despite the progress obtained in 2010 and 2011 with the approval of the implementing decrees of Law no. 42/2009. Conversely, carrying out the fiscal federalism reform in order to seek efficiency gains in the provision of public services and smoothing out intergovernmental relations may represent one of the most important structural measures to address consolidation needs.
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