Central Targets and Local Preferences: Missing Lisbon 2010

In a decentralized setting, are policy targets imposed by the central government on local elected officials effective? And when? We address these questions in Italy, where the central government has set a target for childcare coverage at the municipal level for Southern regions of Italy since 2007. We first implement a difference-in-differences estimator where the municipalities already complying with the target comprise the control group. We then implement a triple-difference estimator with the additional control group of municipalities in the bordering Central regions. Our results show that elected officials comply with the target only when it is coherent with voters' preferences (as measured by the characteristics of the resident female population) rather than political incentives (as measured by partisan alignment among levels of government). The policy implications of our findings are that central targets are ineffective unless they are complemented with policies sustaining local demand (e.g., tax allowances) or penalizing local government that do not comply (e.g., full disclosure and yardstick competition).