Public deficits and the Domestic Stability Pact: Some evidence from the Italian Regions (1984-2002)

This paper attempts to examine the impact of budget rules on fiscal performance by providing an empirical test of the effect of the Domestic Stability Pact on public deficits in the Italian regions for the 1984-2002 period. We find a significantly strong negative effect of the numerical rules imposed by Domestic Stability Pact. Moreover, regional deficits seem to be sensitive to temporary variations of public expenditures and GDP, to the ideological composition of governments and to the political influence of the elderly population.