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November 12, 2007

Implementing a 'Spending Review' -- Italy Seeks to Improve the Quality of Public Expenditure

Posted by Justin Tyson

Italy As indicated in various recent official pronouncements, there is a growing recognition among Italian policy makers, and in the society at large, of the need to substantially improve the effectiveness and cost efficiency of public spending programs. This is clearly the case from a macro-economic perspective (to create “fiscal space” to attend to new spending priorities, while further reducing the general government deficit and debt and moderating the already relatively high tax burden). But it is also the case from the standpoints of increasing the transparency of allocation of budgetary resources, and the value citizens receive from their taxes through public goods, services, and transfers.

The "Public Spending Green Book" (in Italian), sets out the authorities' intent and approach in terms of improving the quality of public spending in Italy. It was prepared by the recently formed public finance commission (Commissione tecnica per la finanza pubblica) and is intended to provide a comprehensive framework for both the public spending reforms and also the annual budget process (Legge Finanziaria). The first chapter discusses the public expenditure context, the second reviews in more detail expenditure in selected sectors, whilst the third analyzes recent efforts, and outlines future reforms, to improve the quality of public expenditure. The Green Book builds on: (i) several initiatives already begun by the Italian authorities; (ii) international experience in implementing spending reviews; and, (iii) a recent report on the subject requested by the Italian authorities from the IMF's Fiscal Affairs Department.

The public finance commission, mainly comprising academics and technical experts, was recently appointed. Its main tasks include assessing issues related to and preparing proposals on:

  • implementation of fiscal federalism reforms;
  • coordination of budgetary reforms;
  • providing support for the spending reviews; and
  • advising on the transparency and reliability of fiscal accounts.

The Italian example presents some particular challenges for implementing a spending review that may not have been present in similar reforms conducted in an Anglo-Saxon context, such as the need to systematically review and rationalize the plethora of laws, potentially developed over many years, that may impinge on a single spending program thus reducing managerial flexibility to "manage for results".

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