Italian Budgeting Policy: Between Punctuations and Incrementalism 3031154460, 9783031154461

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Italian Budgeting Policy Between Punctuations and Incrementalism Alice Cavalieri

Italian Budgeting Policy “Alice Cavalieri has produced a careful and comprehensive analysis of public budgeting during the turbulent course of modern Italian history. Utilizing and improving upon existing budgetary theories, she shows that neither external shocks to the budgeting system nor fiscal reforms directed at making the budgetary process more stable address the key problem in budgetary politics: too many large spending changes and too few appropriate moderate adjustments. It is bound to become a standard go-to resource for future studies of budgeting and policy processes more generally.” —Bryan D. Jones, JJ “Jake” Pickle Regents Chair in Congressional Studies, University of Texas at Austin, USA “Alice Cavalieri’s volume is an original piece of empirical research and a great contribution to the understanding of recent political changes in Italy. Indeed, the volume fills a gap in the study of budgetary politics in a difficult parliamentary democracy, which has been struggling with controversial issues in the management of public finance. At the same time, the volume offers a remarkable example of intensive case study analysis: by following the theoretical perspective of the “comparative agendas project”, the author produces an inspiring interpretation of policy punctuations in a crucial domain.” —Luca Verzichelli, Professor of Political Science, University of Siena, Italy

Alice Cavalieri

Italian Budgeting Policy Between Punctuations and Incrementalism

Alice Cavalieri Department of Political and Social Sciences University of Trieste Trieste, Italy

ISBN 978-3-031-15446-1    ISBN 978-3-031-15447-8 (eBook) https://doi.org/10.1007/978-3-031-15447-8 © The Editor(s) (if applicable) and The Author(s), under exclusive licence to Springer Nature Switzerland AG 2023 This work is subject to copyright. All rights are solely and exclusively licensed by the Publisher, whether the whole or part of the material is concerned, specifically the rights of translation, reprinting, reuse of illustrations, recitation, broadcasting, reproduction on microfilms or in any other physical way, and transmission or information storage and retrieval, electronic adaptation, computer software, or by similar or dissimilar methodology now known or hereafter developed. The use of general descriptive names, registered names, trademarks, service marks, etc. in this publication does not imply, even in the absence of a specific statement, that such names are exempt from the relevant protective laws and regulations and therefore free for general use. The publisher, the authors, and the editors are safe to assume that the advice and information in this book are believed to be true and accurate at the date of publication. Neither the publisher nor the authors or the editors give a warranty, expressed or implied, with respect to the material contained herein or for any errors or omissions that may have been made. The publisher remains neutral with regard to jurisdictional claims in published maps and institutional affiliations. This Palgrave Macmillan imprint is published by the registered company Springer Nature Switzerland AG. The registered company address is: Gewerbestrasse 11, 6330 Cham, Switzerland

To the youth of today. Change is always scary. May we be able to see the opportunities that come with it. May we have the courage to build a new future: Equitable, sustainable, respectful of all humankind.

Names of Italian Political Parties

AD AN APL CD CN DC DEM DS FDI FDV FI FLI IDV IV LeU LN MAIE MPA MSI M5S NCD NCI NPSI PD PDCI PDL

Alleanza Democratica (Democratic Alliance) Alleanza Nazionale (National Alliance) Alleanza per l’Italia (Alliance for Italy) Centro Democratico (Democratic Centre) Coesione Nazionale (National Cohesion) Democrazia Cristiana (Christian Democratic Party) I Democratici (the Democrats) Democratici di Sinistra (Democrats of the Left) Fratelli d’Italia (Brothers of Italy) Federazione dei Verdi (Federation of the Greens) Forza Italia (Go Italy) Futuro e Libertà per l’Italia (Future and Freedom for Italy) Italia dei Valori (Italy of Values) Italia Viva (Italy Alive) Liberi e Uguali (Free and Equal) Lega Nord (Northern League) Movimento Associativo Italiani all’Estero (Associative Movement Italians Abroad) Movimento per le Autonomie (Movement for the Autonomies) Movimento Sociale Italiano (Italian Social Movement) Movimento 5 Stelle (5 Star Movement) Nuovo Centro Destra (New Centre-Right) Noi con l’Italia (We with Italy) Nuovo Partito Socialista Italiano (New Italian Socialist Party) Partito Democratico (Democratic Party) Partito dei Comunisti Italiani (Party of Italian Communists) Popolo delle Libertà (People of Freedom) vii

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NAMES OF ITALIAN POLITICAL PARTIES

PDS PLI PPI PPP PRC PRI PSDI PSI R RI SC UC UDC UDEUR ULIVO

Partito Democratico della Sinistra (Democratic Party of the Left) Partito Liberale Italiano (Italian Liberal Party) Partito Popolare Italiano (Italian People’s Party) Popolari per Prodi (Populars for Prodi) Partito della Rifondazione Comunista (Communist Refoundation Party) Partito Repubblicano Italiano (Italian Republican Party) Partito Socialista Democratico Italiano (Italian Democratic Socialist Party) Partito Socialista Italiano (Italian Socialist Party) Radicali (Radicals) Rinnovamento Italiano (Italian Renewal) Scelta Civica (Civic Choice) Unione di Centro (Union of the Centre) Unione dei Democratici Cristiani e Democratici di Centro (Union of Christian and Center Democrats) Unione Democratici per l’Europa (Union of Democrats for Europe) The Olive-Tree

Acknowledgement

This book is an elaboration of my PhD thesis. In 2018, when I started to work on that, none of the crises that have shaken the world in the subsequent years were foreseeable, not even remotely. I finished writing the thesis in 2020, when mounting pressure caused by an external shock (which I discuss extensively in the book)—the COVID-19 pandemic— dramatically transformed the Italian budget, European economic governance and all our lives. After that, other crises unfortunately followed that are still in place, showing no signs of ending. Incidentally, this fast-­ changing course of events makes me even more aware of the transience of our studies and of those results we eagerly strive for. Nobody knows how long what we write about is meant to last. What I am sure is that everything I learned while writing the thesis, first, and the book second will remain vital. I do not mean only in terms of pure academic knowledge. I mean mostly in terms of personal tools to navigate the weird course of life and work, something that a few people have taught me over the last few years. I owe all of them. I have to start with the one who made this book possible, my long-time supervisor, Prof Luca Verzichelli, for being the best guide I could ever have asked for to accompany me during the PhD and even after, with his honest and friendly help. I must thank Dr Chiara Bergonzini, whose assistance was crucial to get me out from the apparently never-ending world of parliamentary law. During our talks, she got me into the corridors of power, increasing my curiosity even more. I of course need to mention the whole Comparative Agendas Project community, in particular Prof Will Jennings and Prof Bryan D.  Jones, for hosting me at the University of ix

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ACKNOWLEDGEMENT

Southampton and the University of Texas at Austin, respectively. I know how lucky I am to be part of this heterogeneous and international team, composed of passionate, hard-working and most of all very kindly scholars. At the top are my colleagues and friends from the Italian CAP team— Federico Russo, Enrico Borghetto and Marcello Carammia; I am sincerely grateful to each of them for making me part of the group, for always being friendly faces in the sometimes-scary academic world. To the entire CIRCaP (Center for the Study of Political Change) crew and particularly to Rossella, who is like a sister and a passionate scholar. Thanks to Andrea Antonelli, my high school teacher, mentor, support and friend. I must also mention the huge support my therapist, Roberta, gave me over the last year to balance my work and private life. Mental health is a serious issue, particularly in academia. Do not feel ashamed to ask for help and to rest when you feel you need it. A heartfelt thanks to my friends, my second family, spread all around Italy and abroad who have never let me down, those who stay when others left. The most loving thanks to my family, of course, for their constant proximity even at a distance. To my parents, for always having pushed me to pursue my interests and my curiosity and for encouraging all my choices. No word will ever be enough to express how much I love them. To my mum, my sister, my aunt Federica and my grandmothers who are by far the strongest and most tenacious women I know. I could not make it without their example. Last but not least, to Matteo for his liveliness and his smile, for believing in me more than I do, for this new, breathtaking, part of our story.

Contents

1 Introduction  1 2 Policy-Making and Budget Changes 19 3 Budgeting  Policy Within the Union: Italy in the European Context 43 4 Approaching  an Explanation of Longitudinal Change in the Italian Budget 77 5 Incremental Changes or Punctuations?117 6 To  Change or Not to Change: Governments’ Spending Intentions151 7 The Impact of the Decision-Making Process175

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Contents

8 Conclusion199 Appendix A217 Appendix B239 Index257

Abbreviations

AGS AMR ASGS CdC CIRCaP CLT COFOG CPR CSR DBP DEF

Annual Growth Survey Alert Mechanism Report Annual Sustainable Growth Survey Corte dei Conti (Court of Auditors) Center for the Study of Political Change Central Limit Theorem Classification of the Functions of Government Common-Pool Resource Countries-Specific Recommendation Draft Budgetary Plan Documento di Economia e Finanza (Document of Economy and Finance) DPF Decisione di Finanza Pubblica (Public Finance Decision) DMCPP Dynamic Model of Choice for Public Policy DPEF Documento di Programmazione Economica e Finanziaria (Document for the Economic and Financial Planning) EAR Euro-Areas Recommendation EDP Excessive Deficit Procedure EEG European Economic Governance EMS European Monetary System EMU Economic and Monetary Union ES European Semester EU European Union GDP Gross Domestic Product K-S Kolmogorov-Smirnov ISTAT Istituto Nazionale di Statistica (National Institute of Statistics) MEF Ministry of Economy and Finance xiii

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ABBREVIATIONS

MIP MoE MoF MPs MTO NaDEF

Macroeconomic Imbalance Procedure Ministry of Economy Ministry of Finance Members of Parliament Medium-Term Budgetary Objective Nota di Aggiornamento al Documento di Economia e Finanza (Update Note to the Document of Economy and Finance) NGEU Next Generation EU NPRR National Plan of Recovery and Resilience NRP National Reform Program IQR Interquartile Range OLS Ordinary Least Square PEPP Pandemic Emergency Purchase Program PET Punctuated Equilibrium Theory PM Prime Minister RGS Ragioneria Generale dello Stato RQMV Reversed Qualified Majority Voting RRF Recovery and Resilience Facility S-W Shapiro-Wilk SCP Stability and Convergence Program SGP Stability and Growth Pact TFEU Treaty on the Functioning of the European Union TSCG Treaty on Stability, Coordination and Governance UPB Ufficio Parlamentare di Bilancio (Parliamentary Budget Office) ZBB Bilancio a Base Zero (Zero-Based Budgeting)

List of Figures

Fig. 2.1

Fig. 2.2

Fig. 3.1

Fig. 4.1

Trends of primary balance and public debt in Italy (1992–2022). Note: on left graph, date corresponds to the current year while on the right graph date uses the official name of the budget; that means that 1993 indicates the budget for 1993, that is the one approved in December 1992. On the right graph, grey bars indicate only actual policies to which the government allocates funds with the budget law, while black bars refer to interest on public debt and public debt transactions Example of a leptokurtic distribution of budgetary changes. Note: the graph shows the shape of a leptokurtic distribution of budget changes (grey bars) and of a Gaussian curve (red dashed line). The x-axis signals the magnitude and the y-axis shows the frequency of yearly changes. The right side of the distribution is bounded at +100 per cent for visual purposes. The graph is drawn from data described in Chap. 5 (N = 1852) Main aggregates of national accounts in Italy (1980–2021). Note: the left y-axis signals the GDP level (bars); the right y-axis pertains to expenditure, revenues, fiscal balance and debt (expressed as per cent of the GDP). Data are shown in Table A.1 (Appendix A) Trends in public expenditure in Italy (1993–2022). Note: total budget expenditure does not include the interest payment on debt because they are not actual policy intentions (see Fig. 2.1 in Chap. 2 for details on that). The graph is drawn from data described in Chap. 5. From here on, I use the official name of the budget, that means that the 1993 expenditure was allocated by the budget approved in 1992

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31

47

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List of Figures

Fig. 5.1

Fig. 5.2

Fig. 5.3

Fig. 5.4

Distribution of percentage change in Italy across budget categories and years (1993–2022). Note: the graph indicates the magnitude (x-axis) and frequency (y-axis) of yearly percentage change of all budget categories (twenty for the period 1993–1998 and sixty-six for the period 1999–2022) in the thirty years examined (N = 1825). The right side of the distribution is bounded at +200 per cent (there are some cases of larger increases which are grouped into a single bar) to prevent the distribution from being extremely right skewed. The left side is naturally bounded at –100 per cent, meaning that the programme was cancelled. The D (KolmogorovSmirnov test) and W (Shapiro-Wilk test) statistics confirm that the distribution is non-normal Boxplots of annual percentage change and outliers (1993–2022). Note: 1999 has been removed because it marks the shift between two different coding schemes, thus it was not possible to compute the growth of single categories. Stars represent the average percentage change for each year; shaded grey dots are positive and negative modifications on a scale ranging from –100 up to 100 per cent and diamonds are the extreme positive changes higher than a 200 per cent increase Distribution of percentage change across budget functions and years (absolute values) (1993–2022). Note: the graph indicates the magnitude (x-axis) in absolute values and the frequency (y-axis) of yearly percentage change of all budget categories (twenty for the period 1993–1998 and sixty-six for the period 1999–2022) in the thirty years examined (N = 1572). As in Fig. 5.1, the right side of the distribution is bounded at +200 per cent (there are some cases of larger increases which are grouped into a single bar). The vertical grey lines indicate the 15th, 40th, 60th and 85th percentiles that will be used later to estimate the quantile regression model Quantile regression plots (dependent variable in absolute value). Note: each plot interprets the estimation (y-axis) of the independent variables at different percentiles of the dependent variable (x-axis). The x-axis shows the reference quantile τ of the magnitude of budget changes (from small to large modifications) and the y-axis is the size of the estimated effect produced by the covariate. The effect of a one-unit change of the covariate on the dependent variable (holding other covariates fixed) is portrayed by lines with dots. The grey area marks the 95 per cent confidence band for the quantile regression. The red horizontal line is the OLS regression

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  List of Figures 

Fig. 5.5

Fig. 5.6

Fig. 6.1 Fig. 6.2

coefficient, which is linear because it does not vary across quantiles, while red dashed lines are the 95 per cent confidence intervals around the OLS regression line. These lines are useful to compare the confidence intervals of the OLS and quantiles, which are explicative of the significance of results Distribution of percentage change across budget functions and years (real values) (1993–2022). Note: the graph indicates the magnitude (x-axis) in real values and the frequency (y-axis) of yearly percentage change of all budget categories (twenty for the period 1993–1998 and sixty-six for the period 1999–2022) in the twenty-nine years examined (N = 1572). The right side of the distribution is bounded at +200 per cent (larger increases are clustered into a single bar for graphical purposes). The vertical grey lines indicate the cutoff points at the 10th, 30th, 70th and 90th percentiles that will be used later to estimate the quantile regression model Quantile regression plots (dependent variable in real value). Note: each plot interprets the estimation (y-axis) of the independent variables at different percentiles of the dependent variable (x-axis). The x-axis shows the reference quantile τ of the magnitude of budget changes (from large cuts to large increases) and the y-axis is the size of the estimated effect produced by the covariate. The effect of a one-unit change of the covariate on the dependent variable (holding other covariates fixed) is portrayed by lines with dots. The grey area marks the 95 per cent confidence band for the quantile regression. The red horizontal line is the OLS regression coefficient, which is linear because it does not vary across quantiles, while red dashed lines are the 95 per cent confidence intervals around the OLS regression line. These lines are useful to compare the confidence intervals of the OLS and quantiles, which are explicative of the significance of results Types of analysis between budget documents. Source: Cavalieri (2020: 155) Characteristics of the budgets (law(t–1)/bill(t)) (1993–2022). Note: years with diamons indicate budget retrenchment, meaning a negative percentage change between the total spending of the budget bill(t) and the budget law(t–1). Grey dashed lines are placed at the median value of both index of transformativeness and percentage change. The year 2002 has been removed from the plot, as it takes on an extreme value for transformativeness and would have made the figure impossible to read (for details about that year, see Appendix, Table A.14)

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140 154

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List of Figures

Fig. 7.1

Fig. B.1 Fig. B.2 Fig. B.3

Fig. B.4

Characteristics of the budgets (bill(t)/law(t)) (1993–2022). Note: years with diamonds indicate budget retrenchment, meaning a negative percentage change between the total spending of the budget law(t) and the budget bill(t). Grey dashed lines are placed at median value of both index of transformativeness and percentage change. The year 1998 has been removed from the plot, as it takes on an extreme value for the transformativeness and would have made the figure impossible to read (for details about that year see, Appendix, Table A.14). Some labels of those manovre close to 0 are not visible, as they overlap (to check them out see Appendix, Table A.14) Main characteristics of only sudden peaks (budget law) Main characteristics of only sudden peaks (budget bill) Log-log and semi-log plots of percentage change (budget law). Note: the two lines represent the regression estimates for the positive (solid) and negative (dashed) tails of the distribution. In both cases, the negative slope identifying values of budget reductions has been reversed and transformed into positive, in order to have a better visual understanding and comparison with the positive slope Log-log and semi-log plots of percentage change (budget bill). Note: the two lines represent the regression estimates for the positive (solid) and negative (dashed) tails of the distribution. In both cases, the negative slope identifying values of budget reductions has been reversed and transformed into positive, in order to have a better visual understanding and comparison with the positive slope

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List of Tables

Table 3.1 Table 3.2 Table 4.1 Table 4.2 Table 4.3 Table 4.4 Table 4.5 Table 5.1 Table 6.1 Table 7.1 Table A.1 Table A.2 Table A.3 Table A.4 Table A.5 Table A.6 Table A.7 Table A.8 Table A.9

Most relevant changes of the Italian budgetary process and policy cycles of the Italian budget (1978–2021) The Italian budgetary process: timeline of domestic and supranational deadlines of the budgetary process Hypotheses about the magnitude of yearly budget changes (Chap. 5) Hypotheses about the degree of expenditure reallocation between the budget law(t−1) and the budget bill(t) (Chap. 6) Hypotheses about the degree of expenditure reallocation between the budget bill(t) and the budget law(t) (Chap. 7) Typology for the classification of governments (1992–2021) Domestic and external factors potentially affecting Italian budgetary policy (1992–2021) Summary statistics of percentage changes in the budget bill and the budget law OLS regression model OLS regression model Main aggregates of national accounts in Italy (1980–2021) Dimensions of the index of executive planning Index of executive planning (1992–2021) Dimensions of the index of legislative approval Index of legislative approval (1992–2021) Dimensions of the index of European external constraint Index of European external constraint (1992–2021) Coalitional conflicts and conflicts over the budget by year and government (1992–2021) Coding schemes of budget functions (1992–2021)

62 68 80 82 84 91 96 129 165 188 218 219 220 221 222 223 224 225 226 xix

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List of Tables

Table A.10 Table A.11 Table A.12 Table A.13 Table A.14 Table A.15 Table A.16 Table B.1 Table B.2

Summary statistics of the independent and control variables Quantile regression results of the four models (dependent variable in absolute value) Logistic regression results of the full model Quantile regression results of the four models (dependent variable in real value) Index of transformativeness (1993–2022) Summary statistics of the index of transformativeness and percentage change of the total budget OLS regression model (dependent variable: percentage change of the total budget) Budget changes above 200 per cent and related type of change (budget law) Budget changes above 200 per cent and related type of change (budget bill)

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CHAPTER 1

Introduction

Change, Budget and Budget Changes Change has always been—and still is—the driver of human development. Even before humans, ‘punctuational’ change already dominated the history of life (Gould and Eldredge 1977). Tectonic plates move frantically, natural species readjust continuously, humans in their private and social lives inevitably adapt to new conditions—many created by humans themselves. Thus, we should not be surprised to know that scholars from several different fields of research have been engaging for decades in developing theories to explain changes. Not all types of transformation have garnered the same attention, of course. In fact, most modifications are not actual changes. Evolution and paradigmatic changes are not made by frequent, small adjustments. Paradigmatic shifts are instead capable of disrupting the status quo and establishing a new pattern. A great deal of attention concentrates on them. The reason is rather intuitive. These are responsible for the most relevant innovations, regardless of the topic under analysis. However, they are extremely rare because they first need to gather enough pressure around them and reach a critical threshold before anything can take place. When these conditions are met, dramatic changes occur and bring about a new pattern of evolution or install a new policy paradigm. This book is about change. More precisely, it is about change in a crucial policy of democracies, that is, public budgeting.

© The Author(s), under exclusive license to Springer Nature Switzerland AG 2023 A. Cavalieri, Italian Budgeting Policy, https://doi.org/10.1007/978-3-031-15447-8_1

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What is well grounded today, even for public opinion, is the awareness that public budgeting fulfils not simply a priority, but the priority of national governments. Although it has always constituted a fundamental aspect for the state and its functioning, presently it appears to have a more vital role while, at the same time, being extremely complex and difficult to manage. For a long time after WWII, steady surpluses granted policy-­ makers the leeway to spend public money according to their political preferences. The necessity of efficiently reallocating funds among various portfolios was neither compelling nor strictly required (Wildavsky and Caiden 2001). Public expenditure continued to rise as a consequence of past legacies, increasing population, growing demands and the well-known aversion of politicians towards taxes in proportion to spending (Crozier et al. 1975; Rose 1990; Rose and Karran 1987). In the past decades, globalisation has connected countries and their economies all around the world. Sudden shocks occurred from the 1970s onwards, which forced a number of countries worldwide, as a consequence also of the interconnection created by the globalised economy, to cope with a considerable contraction: public finance began to deal with a sharp braking of economic growth and governments were exposed to insistent and urgent pressure for retrenchment. In such a brand-new context of ‘permanent austerity’ (Pierson 1998, 2002), nascent challenges such as demographic changes (e.g. ageing population, declining birth rate), migration crises and rising unemployment (OECD 2019) have required countries to adapt to the external environment and be more attentive in drawing up the budget. It is particularly from the decades of the financial crises (1970s and 1980s) that the crucial role of public budgeting began to stand out (Verzichelli 1999). The two decades saw the dramatic explosion of inequality of wealth distribution both across countries and within developed countries, which kept on soaring ever since. It has been argued (see Piketty 2014) that, in the United States, the rising inequality has made the financial system extremely fragile and exposed it to the 2008 financial crisis. In that year, in a rapidly changing context, where countries are extremely interlinked, and the national economy and finance are globalised, the tie that binds world economies was tightened abruptly, and it quickly became clear that the housing bubble that burst in the United States would also drag the whole European continent into a huge economic crisis. Since that

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moment, crises have become dramatically frequent,1 and countries have lost ample room for manoeuvre to implement expansionary and unguarded budget policies, not only in times of emergency. A well-designed long-term budgetary plan is unavoidable to keep granting people the necessary resources to live and prevent other, new, domestic and external shocks. Countries use their public budget for all these purposes, and basically they decide from whom to take money and to whom to give it, balancing the necessity of granting the long-term fiscal sustainability of national accounts with the short- and long-term needs of the citizens. Public expenditure can be financed mainly through taxes or through debt (usually with a mix of them). At the theoretical level, taxes are by far the preferable solution, both in terms of justice and efficacy (Piketty 2014: 861). However, post-industrial societies are facing a ‘decline in taxability’ because of the slow down of wage growth (Pierson 2002; Streeck 2014). In addition to inequality that keeps on soaring and wealth and benefits of growth that are unevenly distributed, a large proportion of the population has stagnated (Nolan and Thewissen 2018). Such stagnation considerably challenges the possibility for governments to impose new taxes, which was easier when citizens’ real incomes were rising and wage growth was diffuse, as taxation was less visible and voters less aware of taxation (Abbott and Jones 2021). Besides this serious concern, political actors have always considered taxes harmful for their survival in office and have always opted for indebtedness. Public debt entails a payment from those who receive funds to those who borrowed money, and it also carries interest on that debt. However, today wealthier countries all have very high public debt, in part inherited but also recently made. Evidently, a very high public debt constitutes a sword of Damocles hanging over future generations, being a very unfair instrument that forces them to allocate part of their wealth to pay the debt piled up by previous generations.

1  Let us consider for instance the COVID-19 pandemic (which started in 2020) and the subsequent economic downturn, only a decade after the Great Recession (2007–2009) and a few years after the recovery from the Eurozone crisis (2009–2014); the outbreak of the war in Ukraine (started in 2022) that is involving the ‘external’ contribution of all Western democracies meanwhile facing the oil and energy crisis, the consequent food crisis in many countries around the world, in a context of an increasingly severe climatic crisis. If ‘adversity’ was the key concept of the 1990s (Rosenthal and Kouzmin 1997), these years will probably be remembered as the crisis decade.

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The Budget: Playground of Representative Democracy From a public policy scholar’s perspective, all the aspects and events that we have briefly sketched out until now make the study of public budgeting extremely challenging and exciting. As is already blatantly clear, many issues interweave with respect to the budget. In a ruling in 2012, the Italian Constitutional Court judged that the purport of the budget is extremely complex and goes beyond a mere accounting function and the sole respect of the balanced budget (Luciani 2019). Several issues pertain to the study of the budgeting policy, that range from the decision-making process to the analysis of policy changes, going through domestic and supranational procedural rules that frame the final outcome, in addition to the economic context in which political actors operate. In such a multilevel and complex environment, the budget policy inevitably ‘falls within the political space of constrained choice’ (Laffan 2014: 283), in which the government attempts to implement its policy preferences through the annual allocation of funds. At the same time and even more importantly, the government must keep in mind that the budget serves as a redistributive instrument to also fulfil citizens’ long-term demands and needs. However, it is almost impossible to design a long-term budgetary plan that responds to citizens’ needs if the country lacks tidy public accounts. It stands out clearly that these aspects cannot be sharply divided, since the government would inevitably fail to keep its electoral promises and pursue its policy goals, and to address people’s necessities in case of imbalanced public finance. Decisions made in this limited space to manoeuvre will be later submitted to the judgement of voters at the polls. Ultimately, ‘it is an essential element of the representative relationship, because it is primarily on the budget choices that the voters’ consensus joins or dissolves’ (see Luciani 2019: 48, own translation). With this in mind, the budget can be read adopting a threefold perspective (De Ioanna 2019). Primarily, the budget systematises the policy priorities of the government, the leading actor in setting the policy and spending agenda of the country. Balancing the necessity of ensuring the sustainability of public finance and the attempt to carry out its mandate by implementing its spending promises, the government must quantify decisions collectively agreed upon by a number of decision-makers, each of them adapting his/ her own intentions and strategies to the domestic and external institutional setting. The ability of the government to keep itself alive and succeed is strictly linked to, and thus affected by, the actual power of national

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representative institutions. The power of parliament, which must confirm the government’s choices, taking into account the divergent stances of other organised groups and social and economic forces, stands out particularly during the phases of discussion and approval of the budget. To allow an adequate budgetary process, the government must frame possible innovative contents within a rather stable and controllable framework, to ensure the parliament’s function of supervision. From this point of view, the budget is the most impartial complex of rules, because it entails, or better, it requires a high degree of stability and a strict respect of the constitutional norms. Even so, it is at the same time the least impartial set of rules, because it must also consider the transformations of the economic environment (Bin 2019) and the volatility of the financial markets, which nowadays reduce the financial sovereignty of countries (Pisaneschi 2019). This is what Wildavsky already recognised as the ‘clue to the perennial dissatisfaction with budgeting’, that is, the impossibility of reconciling its opposed purposes ‘to continuity (for planning), to change (for policy evaluation), to flexibility (for the economy), and to provide rigidity (for limiting spending)’ (Wildavsky 1978: 501). The importance of these contextual factors represents the second perspective pertaining to national public budgeting. The third one is related to what Wildavsky affirmed and depicts as the incessant historical and social struggle that tries to divest representative institutions of their decisional powers in favour of the market. This is the reason why some say that the economy and even more the market have become the ‘place of confirm-falsification of the government practice’ (Foucault 2005). All of this has moved during the past decades and it is currently fragmented within a broader multilevel governance, with a growing number of regulations trying to reconcile and harmonise the different levels of government, whose interweaving happens on both the side of budgetary regulations and also, in some cases, with respect to the form of government (Lupo 2020). Ultimately, these tensions need to balance each other within a broader context that should be respectful of the representative democracy (De Ioanna 2019: 20). Italy: Magnifying Glass of a Continent At this stage, the key points referring to the study of public budgeting have been outlined. This book aims to reconcile all these critical issues studying a very interesting, though rather neglected country in this field

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of research, that is, Italy. The story and analysis of the Italian budgetary policy presented in the book starts and ends in two moments of deep crisis: 1992 and 2021. The Amato I government brought to conclusion a political system based on five-party coalition governments, that started during the VII legislative term (1979–1983) and was responsible for the most drastic budget retrenchment in Italian republican history up to that moment. On the so-called black Wednesday (16 September 1992), after a long period of immobilism before financial stress (Bernardi 1994), the Italian Lira (the currency used before the Euro) experienced a 7 per cent devaluation compared to the Deutsche Mark and was forced to leave the European Monetary System (EMS). A severe economic crisis followed, accompanied by the decomposition of the political system and the risk of being left out of the single currency just shortly after the Maastricht Treaty had been signed, in February 1992. The sharp rebalancing that emerged from such a political phase downsized the domestic political game, allowing the Prime Minister to demand full control over economic policy (Fedele 1994), with the sole help of the Minister of the Treasury Piero Barucci. The total independence of the cabinet confined the parliament and the ‘gatekeeping’ role of parties (Cotta and Verzichelli 1996), while Amato, exploiting the rhetoric of responsibility (Radaelli 2002: 218), was engaging in one of the boldest reforms of Italian public finance ever, one that remains recognised as a watershed in Italian public budgeting history. This is the starting point of the story narrated in this book that will help us to uncover and understand what happened in the Italian budgetary process and policy from that moment and throughout the last three decades. Why Italy? From the budget issued by the Amato I government until the one issued by the Draghi government (the last one analysed in the book) several things have changed, both at the domestic and at the supranational level. Taking a step back and picking up the threads of the discourse about public debt begun in the first paragraph, we know that the European continent is the place where countries are always found to be inadequate in solving the debt crisis (in spite of their giant private estate), making them increasingly poor (Piketti 2014: 862). Digging deeper into a more micro level, within the European continent, Italy has long been considered—and still is—the ‘sick man of Europe’ with which the word decline is always associated. Despite being one of three largest economies in the Eurozone, Italy had the second lowest growth rate among EU countries for the whole period between the 1990s and 2009, with a massive level of public debt

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causing serious concerns about its financial credibility and international competitiveness. After the Eurozone crisis (2009–2014), the situation did not improve, obviously. An economic decline (described in detail in Chaps. 2 and 3) from which the country has not yet managed to exit is a situation which affects many developed countries, especially on the European continent. Understanding how Italy has managed its budgeting policy during the past decades and how it changed its approach—if it did at all—can serve as an important example to demonstrate how other countries exposed to similar economic and financial pressures confronted a comparable situation. A decline does not stop with the pure economic aspect but also affects the public and political side. Unsurprisingly, the Eurozone crisis and the recession that followed not only caused burdensome economic losses but also disrupted national political dynamics. Governing parties paid heavy electoral costs (Bellucci et  al. 2012), especially when they favoured responsibility over responsiveness (Mair 2011), which on some occasions seemed not really a deliberative choice. In a context already characterised by reduced class voting (Dalton and Wattenberg 2002), declining party identification, high electoral volatility and, most of all, mounting dissatisfaction and protests over the elites in office, new political parties were born. The unpopular and bold choices—all in favour of fiscal discipline (Karremans and Cavalieri forthcoming)—taken by national and European elites during the Eurozone crisis vitalised throughout Europe many anti-establishment (Cordero and Simón 2016) and populist parties (Bosco and Verney 2012). Italy was one of the countries where these processes happened more forcefully, and is in fact where some of the most relevant transformations of Western democracies had already taken place,2 even serving as a vanguard for possible new events. 2  For instance, the first government in Western democracies composed solely of populist parties (Five Star Movement [M5S] and League), Conte I (2018–2019). M5S succeeded in entering parliament in 2013, creating a new tripolar competition, by presenting itself as ‘outside’ from the usual left-right political divide (Ceccarini and Bordignon 2016) and surfing on its noninvolvement into institutional party dynamics, as an archetypical example of a challenger party (Hobolt and Tilley 2016). Conte I is the first government with the M5S, formed after its success at the 2018 polls with the League, after the signature of aformal agreement called ‘Contract for a government of change’ (Contratto per il governo del cambiamento). The League transitioned from ethnoregionalism to state-wide nationalism (Albertazzi et al. 2018), and eventually transformed into a populist radical-right party (Tarchi 2018). In 2018, it was the most popular and successful radical-right party in Western Europe (Passarelli and Tuorto 2018). Today, Italy is governed by a right-wing coalition led by Brothers of Italy

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A political decline manifests itself as political parties being able to enter representative institutions and, increasingly, even in government with political programmes openly against national and supranational institutions themselves. The European Union indeed is currently the worst enemy of many populist parties, which are challenging the credibility and the existence of the Union itself. Although it is important to signal that in the past decade, the European response to many challenges was either too harsh, forcing countries to adopt austerity measures during the economic crisis that brought debtor countries into a more dangerous recessive spiral, or too feeble, as during the migration crisis that happened in 2015–2016 in the Mediterranean, when Southern European countries were left alone because of the inability of the EU to modify its regulations, today’s fracture with supranational institutions is more serious than ever. From being ‘one of the homelands of Europeanism’ (Pasquinucci 2016: 49, own translation) at the dawn of the European Community, Italy saw the gradual emergence of Eurosceptic sentiments starting with the Maastricht Treaty (1992)3 and today the pro- versus anti-EU cleavage focuses the Italian party system and party competition (Bressanelli and Chelotti 2022). In addition, national governments more often openly clash with the European Commission, as in the case of the Berlusconi IV government in 2011 and even more so in the Conte I government in 2018, with serious repercussions on the budgetary process and democratic procedures (see Chap. 8). This break is not an Italian specificity but, again, affects many European countries. For different reasons, or concerning divergent policies and approaches, almost all Member States—from Greece to the Netherlands, from France to Poland—have to deal with the EU as an issue in their national parties’ agendas and competition. In this regard, as the reinforcement of European Economic Governance has considerably shaped and (Fratelli d’Italia, FDI)—a radical-right party which was the most voted party at the Italian 2022 elections—and its leader, Giorgia Meloni, who was part of the youth organisation of Italian Social Movement (Movimento Sociale Italiano, MSI), the main Italian extreme right party at the time (Ignazi 1998). In October 2022, with the beginning of the XIX legislative term, Giorgia Meloni became the first woman Prime Minister in Italy; however, the period analysed in this book had only men serving as Prime Minister and Minister of Finance. This is the unique reason why, throughout the book, I refer to these roles using the masculine. 3  Already in the 1990s Silvio Berlusconi criticised how Italy had accepted the single currency ‘in a closed box’ (Berlusconi 2000: 53; cited in Pasquinucci 2016). Similarly, the leader of the Communist Refoundation Party (Rifondazione Comunista, PRC) asked to start a discussion about revision of the Maastricht convergence parameters.

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coordinated domestic budget policy, studying changes to the Italian budget is particularly enlightening of the relationship between the two sides of multilevel governance. Using Italy as a case study can help elucidate how the relationship transformed and highlights what are the more serious pitfalls that endanger the integration process: a process which is, intuitively, dynamic and made by the attitudes and choices of countries themselves that need to be uncovered. Moreover, as populists and radical-right parties are today widespread across parliaments and governments in the European continent, studying Italy improves our knowledge about how they manage budget policy compared to other parties’ families. This is a crucial point as these parties gain a lot of consensus declaring themselves to be  responsive to their electorate and promising not to succumb to  the responsibilities demanded by supranational constraints and commitments. However, the budget is an extremely institutionalised policy venue, constrained by a supranational pre-determined timeline (see Chap. 3) and markedly difficult to shape in order to implement electoral pledges. Italy can considerably advance our knowledge on these sides, allowing us to generalise findings. Besides these aspects, Italy preserves its own characteristics that will be addressed in detail throughout the book. At a general level, it went through the kick-off and the maturity of the Second Republic (1992–2012) to the still-in-place Third Republic (2013–ongoing). Although these designations are nothing more than a simple shortcut to refer to the party system’s changes after the political turmoil of the beginning of the 1990s and of the 2010s, they are already emblematic of the many innovations the country went through.4 To mention some, from the instalment of the Second Republic, we witness changes to the electoral system (four times); a widely divergent party system; the alternation of nineteen governments

4  It is important to warn the reader who is not familiar with Italian politics that Italy did not change its Constitution in the passage between the First (1948–1991), Second (1992–2012) and Third (2013–present) Republic. In fact, these are mainly journalistic terms used to differentiate the path of the Italian republican history that in many cases scholars refrain from using as they are inaccurate. In addition, we need to also point out that the main features of the Third Republic are not yet well-defined and sometimes a little controversial. However, as their use is widespread, and these periods are also related to important innovations of the budgetary process that are obviously linked to the rearrangement that occurred during those turning points, I choose to adopt the labels in the book, also helping the reader’s comprehension.

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during eight legislative terms (from XI to XXVIII)5 and the resort to technocratic governments specifically to address moments of crisis (from the 1992 economic earthquake to the Eurozone crisis and the COVID-19 pandemic); and the integration into the Economic and Monetary Union (EMU) and the consequences of the development of the European Economic Governance (EEG)—both of which triggered a domestic reform process of budgetary procedures and, of course, of economic parameters. All these shifts happened in an institutional setting characterised by a symmetric bicameralism—where the Chamber of Deputies and the Senate of the Republic fulfil exactly the same tasks—which has long been blamed for preventing an efficient decision-making process and hindering the government from steering its spending programme. In the end, from a bird’s-eye view, one may think that so much changed just to allow things to stay the same. Is this true? Italy being one of the most important parliamentary democracies in Europe and a relevant actor within the Union, the analysis of budgetary policy and long-term changes thereof are extremely relevant to understanding and interpreting recent innovations of European parliamentary democracies more in general, and how these affect the management and outcomes of the budgetary policy. Ultimately, the book aims to clarify the meaning of politics in the framework of the budget policy, singling out the most relevant aspects concerning: (1) the budget as an instrument of the government to carry out its preferred policies, by modifying the status quo; in this respect, we can elucidate the incessant struggle between responsiveness and responsibility, for which the budget policy constitutes probably the most fertile breeding ground; (2) the budget as an arena where the different actors involved in multilevel governance exert their influence on the final spending outcome; on this, we trace the transformations of regulations at the domestic and supranational levels that frame the budgetary decision-making process, highlighting the role of the government in designing a credible budget plan, of the parliament in assuring the respect of the norms in order to safeguard the rights of the opposition and of the EU in determining the policy paradigm Member States’ budget  After the polls of 25 September 2022, a new legislative term (XIX) began, with the instalment of a new parliament after a Constitutional reform that saw a reduction from 945 to 600 representatives, and of a new government led by the first woman to become Prime Minister in Italy (Giorgia Meloni). 5

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policy is subject to; and (3) the budget as a policy to face tensions triggered by the economic environment and by crises, particularly the Eurozone crisis (2009–2014) that hit European countries after the Great Recession (2007–2009) and the COVID-19 pandemic crisis that started in 2020; by considering these shocks, we can understand whether policy-­ makers are able to balance their policy goals with sudden necessities dictated by a crisis situation, and to implement new policy ideas when a crisis situation requires them to renew the policy approach. Structure of the Book Clearly, as the heart of the matter needs to be analysed from various angles, the argument of the book is developed through several chapters, each of which addresses specific cognitive questions through different methodological tools. Chapter 2 begins explaining to the reader why it is crucial to have a deep comprehension of the budget, as a tool of political representation and competition but also of long-term economic planning. Then, we review the main lines of research on budget changes and illustrate the theoretical framework on which the book rests. It provides the theoretical and methodological tools for the reader to understand the analysis carried out in the last part of the book (Chaps. 5–7). We review how the literature developed the incremental model and integrated it with the bounded rationality, to finally arrive at the Punctuated Equilibrium Theory (PET). Explaining the role of attention, cognitive limits, institutional frictions and shocks, the reader is equipped with the theoretical foundations to appreciate the dynamics of change and stasis of the budget policy. Chapter 3 shifts attention to the external environment which shapes the Italian budgetary process and policy and describes the most important evolution at the domestic and supranational level. It starts with a brief history of Italian national accounts, then we review the main developments of the budgetary process through a detailed description of transformations affecting domestic regulations and how the management of the budgetary process was transformed as a consequence of those. This process is interlaced with the improvement of the European Economic Governance, presented from the 1992 Maastricht Treaty to the 2020 Next Generation EU programme. This overview is useful as it evidences the development of multilevel governance and the struggle between the domestic and supranational positions.

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Some have accused the European Union of too stringent external constraints. Others instead remind us that supranational bonds stem from the implementation of European treaties (Clift and Ryner 2014) and suggest that the issue lies in the way the European constraint is conceived and promoted by domestic actors. Ultimately, the external constraint is more of a ‘perception of the constraints—which is wrongly called “external”— that characterise the inter-dependencies within which Eurozone economies and states are required to operate’ (Bezes and Le Lidec 2015: 503) and that could not have been pursued without the necessary changes at the domestic level of national rules of procedure (Lupo and Piccirilli 2017). Chapter 3 addresses this issue. In general terms, the establishment of the Second Republic (1992–2012) represented the beginning of a period of fiscal responsibility, somewhat influenced by the European Union after the Maastricht Treaty, with governments reaching primary surplus (when revenues foreseen in the budget, net of the cost of public debt, exceed the expenditure) each year (except during the Eurozone crisis) (Guardiancich et al. 2022). It went hand in hand with a long reform process and a general reconstruction of the entire structure of the budget session, with the purpose of centralising the decisions in the government’s hands and trimming the budget session, in line with the attempted implementation of a majoritarian model distinctive of the Second Republic (1992–2012). The reform process of the supranational level is thus interlaced with the domestic one, as the former exerted a strong pressure on Member States’ institutions, policies and politics (Börzel and Risse 2003). Chapter 4 presents the research puzzle, illustrating the merits of a single case study and the relevance of the Italian case. First, the section explains the type of analysis that will be conducted in the rest of the book, focusing on different points in time and budgetary documents. The multifaceted investigation is possible, thanks to the availability of a brand-new twin dataset6 that puts together information about the allocation of expenditure across ten macro and sixty-six budget spending categories from 1992 to 2021, contained in the budget bill and in the budget law. All in all, the book considerably improves our knowledge on the Italian case, meanwhile advantaging the PET. On the one hand, it is the first time that we use the PET instruments to study the Italian case comprehensively. In this respect, we add two 6  Part of the same dataset was already used in previous studies (Cavalieri 2020; Cavalieri et al. 2018), but the full set of up-to-date data is used for the first time in the book.

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fundamental variables pertaining to the measurement of the budgetary regime centralisation and the degree of supranational constraint. I purposefully create two indexes: the first one focuses on the domestic level and combines national normative modifications and the evolution of praxes; the second assesses the effect of the reinforced European economic governance on national budget policy. On a methodological level, this is a profound advancement for the comprehension of the budgetary policy outcome. Thanks to these two measures, it is possible to advance the PET, contributing to a recent perspective that studies the difference between deliberative and collective decision-making processes (Epp 2015, 2017; Page 2007; Surowiecki 2004). On the other hand, the availability of two perfectly comparable documents (i.e. the budget bill and the budget law) allows us to apply the PE approach and tools to the study of the annual legislative process, thus shedding light on legislative dynamics in parliamentary democracies. Chapter 5 gets into the heart of the quantitative analysis of the book. For this and Chaps. 6 and 7, specific hypotheses are developed, to understand the effect of institutional frictions—fragmentation of the party system, government ideological polarisation, budgetary process centralisation, European constraint—and the impact of crises—notably the Eurozone crisis and the COVID-19 pandemic—on the degree of annual budgetary changes. In this way, we test the Punctuated Equilibrium Theory on the Italian budget policy over the last three decades. At first inspection of the pattern of changes, tiny adjustments that leave the status quo unaltered are the norm, but this pace is seldom suddenly shattered by extreme changes. What are the reasons behind this tendency in Italy? What are the driving forces of the evolution of the Italian budget policy and are modifications actual turning points? These questions are answered by estimating two different models. The first one predicts the magnitude of modifications of the budget without considering their direction. A second one, instead, focuses on the direction of changes, considering whether we are dealing with dramatic cuts, extreme increases or tiny (positive and negative) adjustments, to have a deeper comprehension of the determinants of budgetary changes in Italy. Chapter 6 uses for the first time in the book the budget bill and compares it with the budget law of the previous year. Considering some of the independent variables of Chap. 5, this section makes a relevant contribution to previous knowledge as it measures the government’s position with respect to the status quo and inspects the government’s attempt to deviate

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from that. Did the government have different policy preferences with respect to the last budget law and did it try to change the allocation of expenditure, or was it satisfied with the status quo? To go further on this aspect, this chapter takes into account the reallocation of expenditure across budget categories and from that develops an index which judges the overall degree of transformativeness of the budget. This is relevant not only for the information the study can provide but also because research on parliamentary decision-making processes has always neglected the study of the budget, because of its complexity and the different logic it is subject to when compared with other types of legislation. In this respect, Chap. 7 closes the analysis by introducing new pieces of information about the budgetary policy-making process and the balance of power among the three most important actors, namely the government, the parliament and more and more the European Commission. With the growing complexity of multilevel governance, the budgetary process at the core of policy decisions is increasingly pre-determined and bounded at the supranational level. This situation, according to some scholars, calls out the relevance of democratic choice and representative democracy itself (see, among others, De Ioanna 2019: 15). What is the actual power of each actor? Is the budget law issued at the end of the financial year the result of the government’s will or did the other two players interfere so much as to determine the final allocation of expenditure? Using the same index developed in Chap. 6—this time measured comparing the budget law with the budget bill of the same year—we have the chance through this investigation to infer about the role of budget policy, as a political document for the government to steer its electoral mandate, and to understand the balance of power in representative democracies within the framework of improved multilevel governance. Italy is one of the most important countries in Europe and one of the largest economies in the Eurozone and is a promising case study that can substantially advance knowledge on dynamics of changes characterising budgetary policy, as well as on the degree to which the budget is a tool used by the majority to unfold the electoral mandate, enlightening at the same time the mechanisms and challenges of contemporary representative democracies. The multifaceted analysis carried out in this book provides an overarching interpretation of the key points mentioned in this chapter which, broadly speaking, encompasses all the possible interconnections between policy and politics, and argues about the role of crises for political changes.

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References Abbott, Andrew, and Philip Jones. 2021. Government Response to Increased Demand for Public Services: The Cyclicality of Government Health Expenditures in the OECD. European Journal of Political Economy 68. Albertazzi, Daniele, Arianna Giovannini, and Antonella Seddone. 2018. “No Regionalism Please, We Are Leghisti!” The Transformation of the Italian Lega Nord under the Leadership of Matteo Salvini. Regional and Federal Studies 28(5): 645–671. Bellucci, Paolo, Marina Costa Lobo, and Michael S. Lewis-Beck. 2012. Economic Crisis and Elections: The European Periphery. Electoral Studies 31 (3): 469–471. Berlusconi, Silvio. 2000. L’Italia che ho in mente. Milano: Mondadori Bernardi, Luigi (ed). 1994. Rapporto Sulla Finanza Pubblica in Italia. Milano: FrancoAngeli. Bezes, Philippe, and Patrick Le Lidec. 2015. The French Politics of Retrenchment (2007–2012): Institutions and Blame Avoidance Strategies. International Review of Administrative Sciences 81 (3): 498–521. Bin, Roberto. 2019. Introduzione. In C.  Bergonzini (ed),  Costituzione e Bilancio. Milano: FrancoAngeli. Bosco, Anna, and Susannah Verney. 2012. Electoral Epidemic: The Political Cost of Economic Crisis in Southern Europe, 2010–11. South European Society and Politics 17 (2): 129–154. Börzel, Tanja A., and Thomas Risse. 2003. Conceptualizing the Domestic Impact of Europe. In  K.  Featherstone and C.M.  Radaelli (eds),  The Politics of Europeanization. Oxford: Oxford University Press. Bressanelli, Edoardo, and Nicola Chelotti. 2022. L’Italia nello scacchiere internazionale. In G.  Baldini and A.  Pritoni (eds),  Il Sistema Politico Italiano. Cittadini, attori e istituzioni. Milano: Mondadori Università. Cavalieri, Alice. 2020. Responsiveness, Responsibility and the Role of Parliament. Public Budgeting in Italy in the Time of Techno-Populism. Italian Political Science 15 (2): 150–172. Cavalieri, Alice, Federico Russo, and Luca Verzichelli. 2018. Misery Loves Company. Strategies for Retrenchment in the Era of Constrained Public Finance. Italian Political Science Review/Rivista Italiana Di Scienza Politica 48 (3): 327–343. Ceccarini, Luigi, and Fabio Bordignon. 2016. The Five Stars Continue to Shine: The Consolidation of Grillo’s “Movement Party” in Italy. Contemporary Italian Politics 8 (2): 131–159. Clift, Ben, and Magnus Ryner. 2014. Joined at the Hip, But Pulling Apart? Franco-German Relations, the Eurozone Crisis and the Politics of Austerity. French Politics 12 (2): 136–163. Cordero, Guillermo, and Pablo Simón. 2016. Economic Crisis and Support for Democracy in Europe. West European Politics 39 (2): 305–325.

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Cotta, Maurizio, and Luca Verzichelli. 1996. Italy: Sunset of a Partitocracy. In J.  Blondel and M.  Cotta (eds),  Party and Government. An Inquiry into the Relationship Between Governments and Supporting Parties in Liberal Democracies. London: Palgrave Macmillan. Crozier, Michel, Samuel P.  Huntington, and Jōji Watanuki. 1975. The Crisis of Democracy. New York: New York University Press. Dalton, Russel J., and Martin P.  Wattenberg. 2002. Parties Without Partisans: Political Change in Advanced Industrial Democracies. Oxford University Press on Demand. De Ioanna, Paolo. 2019. Il Bilancio Pubblico: Una Infrastruttura Cruciale per Il Funzionamento Della Democrazia Rappresentativa in Italia e in Europa. In C. Bergonzini (ed), Costituzione e Bilancio. Milano: FrancoAngeli. Epp, Derek A. 2015. Punctuated Equilibria in the Private Sector and the Stability of Market Systems. Policy Studies Journal 43 (4): 417–436. ———. 2017. Public Policy and the Wisdom of Crowds. Cognitive Systems Research 43 (June): 53–61. Fedele, Marcello. 1994. Governo e Parlamento Nella Transizione Istituzionale: Le Prime Tendenze Della XII Legislatura. Osservatorio Istituzionale Polity: Università degli Studi di Roma La Sapienza. Foucault, Michel. 2005. Nascita Della Biopolitica. Corso al Collège de France (1978–1979). Milano: Feltrinelli. Gould, Stephen Jay, and Niles Eldredge. 1977. Punctuated Equilibria: The Tempo and Mode of Evolution Reconsidered. Paleobiology 3 (2): 115–151. Guardiancich, Igor, Mattia Guidi, and Manuela Moschella. 2022. Il sistema economico tra declino e riforme. In G.  Baldini and A.  Pritoni (eds),  Il Sistema Politico Italiano. Cittadini, attori e itituzioni. Milano: Mondadori Università. Hobolt, Sara B., and James Tilley. 2016. Fleeing the Centre: The Rise of Challenger Parties in the Aftermath of the Euro Crisis. West European Politics 39 (5): 971–991. Ignazi, Piero. 1998. Il polo escluso: profilo storico del Movimento sociale italiano. Bologna: Il Mulino. Karremans, Johannes, and Alice Cavalieri. forthcoming. ‘Between austerity and Keynesianism: budgetary approaches in Germany, Italy and the Netherlands during Europe’s decade of crises (2010–2020)’. In T. Notermans, S. Piattoni, L. Verzichelli and C. Wagemann (eds), E la nave va… Germany and Italy in Turbulent Times, Loveno di Menaggio: Villa Vigone Editore | Verlag. Laffan, Brigid. 2014. Testing Times: The Growing Primacy of Responsibility in the Euro Area. West European Politics 37 (2): 270–287. Luciani, Massimo. 2019. Bilancio, Forma Di Governo, Forma Di Stato. In C. Bergonzini (ed), Costituzione e Bilancio. Milano: FrancoAngeli.

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Lupo, Nicola. 2020. Il Parlamento Italiano Nel Calendario Comune Di Bilancio. Amministrazione In Cammino.. https://www.amministrazioneincammino. luiss.it/wp-­content/uploads/2020/09/LUPO.pdf. Lupo, Nicola, and Giovanni Piccirilli. 2017. The Italian Parliament in the European Union. Oxford: Hart Publishing. Mair, Peter. 2011. Bini Smaghi vs. the Parties: Representative Government and Institutional Constraints. EUI Working Papers (22). Nolan, Brian, and Stefan Thewissen. 2018. The Evolution of Living Standards for Middle and Lower Income Households in OECD Countries. In B.  Nolan (ed), Generating Prosperity for Working Families in Affluent Countries. Oxford: Oxford University Press. OECD. 2019. Budgeting and Public Expenditures in OECD Countries. Paris: OECD Publishing. Page, Scott E. 2007. The Difference: How the Power of Diversity Creates Better Groups, Firms, Schools, and Societies. Princeton, NJ: Princeton University Press. Pasquinucci, Daniele. 2016. Le radici storiche dell’euroscetticismo italiano. In D. Pasquinucci and L. Verzichelli (eds), Contro l’Europa? I diversi scetticismi verso l’integrazione europea. Bologna: Il Mulino. Passarelli, Gianluca, and Dario Tuorto. 2018. The Five Star Movement: Purely a Matter of Protest? The Rise of a New Party between Political Discontent and Reasoned Voting. Party Politics 24 (2): 129–140. Pierson, Paul. 1998. Irresistible Forces, Immovable Objects: Post-Industrial Welfare States Confront Permanent Austerity. Journal of European Public Policy 5 (4): 539–560. ———. 2002. Coping with Permanent Austerity: Welfare State Restructuring in Affluent Democracies. Revue Française de Sociologie 43 (2): 369–406. Piketty, Thomas. 2014. Il capitale nel XXI secolo. Milano: Bompiani. Pisaneschi, Andrea. 2019. Bilancio Dello Stato e Condizionalità. In C. Bergonzini (ed), Costituzione e Bilancio. Milano: FrancoAngeli. Radaelli, Claudio. 2002. The Italian State and the Euro: Institutions, Discourse, and Policy Regimes. Oxford: Oxford University Press. Rose, Richard. 1990. Inheritance Before Choice in Public Policy. Journal of Theoretical Politics 2 (3): 263–291. Rose, Richard, and Terence Karran. 1987. Taxation by Political Inertia: Financing the Growth of Government in Britain. London: Routledge. Rosenthal, U., and A.  Kouzmin. 1997. Crises and Crisis Management: Toward Comprehensive Government Decision Making. Journal of Public Administration Research and Theory 7 (2): 277–304. Streeck, Wolfgang. 2014. Buying Time: The Delayed Crisis of Democratic Capitalism. London, New York: Verso Books.

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Surowiecki, James. 2004. The Wisdom of Crowds: Why the Many Are Smarter Then the Few and How Collective Wisdom Shapes Business, Economies, Societies and Nations. New York: Anchor Book. Tarchi, Marco. 2018. Voters Without a Party: The “Long Decade” of the Italian Centre-Right and Its Uncertain Future. South European Society and Politics 23 (1): 147–162. Verzichelli, Luca. 1999. La politica di bilancio. Bologna: Il Mulino. Wildavsky, Aaron. 1978. A Budget for All Seasons? Why the Traditional Budget Lasts. Public Administration Review 38 (6): 501–509. Wildavsky, Aaron B., and Naomi Caiden. 2001. The New Politics of the Budgetary Process. New York: Addison Wesley/Longman.

CHAPTER 2

Policy-Making and Budget Changes

2.1   Introduction ‘Because economic choices are most of the time the fundamental ones for people’s lives […] it is not reckless to affirm that the essence of democracy lies in public budgeting’ (Vegas 2014: 12, own translation). If this claim sounds too bold, we can linger a moment to consider that the issue of the management of the public budget is as old as those about the form of the state and the form of government, and deeply linked with them (Luciani 2019: 40). It is sufficient to think about Machiavelli, Hobbes, Locke and Botero to remember that the matter of who governs public budgeting is ancient but still at the core of national debate. In fact, public budgeting is considered the ‘life-blood of the government’ (Wildavsky 1992) which determines the fortunes of a country, on both the economic and the social side. Political science and public policy scholars, along with economists, have engaged for a long time in the study of public budgeting and national accounts and have given us many different tools to understand the subject. Still, the matter is complicated and increasingly multifaceted. Findings and implications are far from being totally clear to citizens, although they are the ones who suffer the most from the consequences of a myopic view and a poorly designed public budget. A first rapid recognition of how recent theories explaining public budgeting formed and evolved is presented in this chapter, along with the theoretical framework adopted in the book. The reader is thus provided © The Author(s), under exclusive license to Springer Nature Switzerland AG 2023 A. Cavalieri, Italian Budgeting Policy, https://doi.org/10.1007/978-3-031-15447-8_2

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with the necessary tools for understanding the topic under analysis and how to study it. More precisely, we will start with the evolution of studies about budgetary changes to arrive at the Punctuated Equilibrium Theory, which is currently the best-known and most serious attempt to elucidate policy modifications. With the caveat that ‘policy proposals are […] unpredictable in their consequences’ (Lindblom 1959: 85), we aim to know whether the decision-making is an erratic or a scrupulous process and look for an answer to this dilemma. This starting point is fundamental in order to get a sense of the analysis carried out later in the book and has evident implications for the comprehension of results.

2.2  The Importance of Studying Public Budgeting The Budget as Essence of Political Representation and Competition There is nothing more complex for a state than designing a perfect budget. The budget defines the policies that the government aims to implement in the next year (and, usually, in the following three or five years depending on the national design) with concrete monetary commitments. At a general level, public budgets allow governments to use their expenditure and taxation powers to influence their country’s economy. On the one hand, governments are bound by their representative commitments to respond to domestic demands, and thus to deliver resources to domestic socio-economic groups or sectors, either in the form of tax reductions or through expenditure increases (Schiavo-Campo 2018). On the other hand, they are expected to bolster the economy and to ensure the long-­ term sustainability of public finances, thus they need to keep the balance between state revenues and expenditures in check (Yarrow 2008). This entails that, broadly speaking, higher revenues allow for more expenditures and that lower expenditures allow for lower taxes. The budgetary policy involves movements of financial resources from socio-economic actors to the state and vice versa. Government budgets inevitably involve choices about how burdens and benefits are distributed among the national population. These choices are mostly about expansion or retrenchment of the public sector, with the former being generally more associated with egalitarian ideals and the latter with more meritocratic and entrepreneurial ideals (Beramendi et al. 2015; Kriesi et al. 2012). In their macro-economic policy-making, thus, governments have a choice between a more investment-oriented approach involving high public spending with the promise

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of high fiscal returns and a more neo-liberal approach involving low taxation with the promise of enough fiscal returns to finance the necessary expenditures (Ólafsson 2019; Wasserfallen et al. 2019). Synthetically, the budget is ‘supposed to contribute to continuity (for planning), to change (for policy evaluation), to flexibility (for the economy), and to provide rigidity (for limiting spending)’ (Wildavsky 1978: 501). However, continuity and change, rigidity and flexibility seem to be in contrast to one another, thus any decisions, in one direction or the other, expose public budgeting to perennial tensions and dissatisfactions about its management. A lot of actors and organised interests, which represent the different collective stances they want to protect, play their game, bargain with each other and make deals, trying to get the most out of the budgetary process without losing what they already have. In this respect, the budget shows the relative power of actors involved in the decision-­ making process, such as the branches of the government and the legislature. The range of institutional players involved encompasses the executive as a collective body, individual ministries—especially the Ministry of Finance (henceforth MoF), which may, on some occasions, even act at odds with the Prime Minister (henceforth PM)—but also individual Members of Parliament (MPs) who try to support their constituency and lobbies. Citizens, on their side, ultimately bear the burden of specific interests’ choices and may, in the next polls, turn against politicians who took those decisions. Clearly, the budget is also a fundamental political arena. Furthermore, the budget unmasks politicians. In contrast to other political documents, the budget cannot be exploited as a mere showcase of policy positions without any future, but is rather a litmus test of actual political priorities. It leaves no room for imagination, as it translates policy commitments into a quantifiable amount of financial resources, listing revenues and expenses for a delimited time period and conveying the services that the state wants to provide to its citizens and what specific services and to what extent citizens are entitled to them. Thus, it is not simply a document; it is a political act. Politicians fiddle with public money and their decisions have serious implications for citizens, who may vote them out of office in response to unpopular spending choices. Accountability is therefore a fundamental part of public budgeting (Rubin 2017; Wildavsky 1978), which rises as a vantage point from which to study the interweaving of policy with politics.

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The Budget as the Essence of Economic Planning and Sustainability Moreover, the budget requires balancing, for both the ongoing year and future ones. It impacts the national economy and has consequences at the level of employment and the amount of social provisions for targeted social groups, as it is also the driver of specific policy reforms. For these reasons, it gives credibility to a country’s performance, not only in voters’ eyes but particularly at the international level. In recent decades, it has grown in importance, urgency (it is indeed the most significant source of income for many households who benefit from the state’s assistance [OECD 2019]) and complexity. Several statutory requirements demand a yearly incremental allocation of funds, which need to be implemented before spending decisions are made and cannot be neglected by the legislature. The room for manoeuvre is evidently constrained. This is especially true in those countries with a high level of public debt, which exposes countries to the risk of financial speculation and limits the possibility for expansionary fiscal policy and investments. While a certain degree of public debt is sustainable, very high public debt reduces the government’s practicability of carrying out an expansionary budget policy and long-term investments. The government is expected to repay that debt and that is possible through a notable and constant rate of growth. Here, two main issues emerge. On the one hand, public debt brings about interest, whose cost increases as far as the debt and the interest rates on that debt grow (Guardiancich et al. 2022). On the other hand, slow and faint growth is a barrier to the reduction of debt, as the country lacks the main instrument to offset it. Today, the developed world has reached the highest level of indebtedness since the end of WWII, with wealthier countries constantly trapped in the debt grip (Piketty 2014) and struggling to find resources to finance their budget’s choices. This troublesome situation is particularly evident in the Italian case (Fig. 2.1). Italy is among the countries with the highest public debt (as a percentage of GDP) worldwide and the second highest in Europe after Greece (Guardiancich et al. 2022). The causes are deep and date back to decades ago. However, the Italian situation is particularly interesting as it blatantly demonstrates how a very high public debt affects public accounts and limits the choices the government can make within the budget. Italian public debt, which was around 20 per cent of GDP after the end of WWII, started growing in the 1970s and exploded in the 1990s (see Chap. 3 for a more detailed reconstruction; see also Bastasin et al. 2019) and with the COVID-19 crisis has reached its worst level. Today, about 30 per cent of

−6

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93 995 997 999 001 003 005 007 009 011 013 015 017 019 021 1 1 1 2 2 2 2 2 2 2 2 2 2 2

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75

100

Payment on public debt

Year Policies

93 995 997 999 001 003 005 007 009 011 013 015 017 019 021 2 2 2 2 2 2 1 1 1 2 2 2 2 2 19

Fig. 2.1  Trends of primary balance and public debt in Italy (1992–2022). Note: on left graph, date corresponds to the current year while on the right graph date uses the official name of the budget; that means that 1993 indicates the budget for 1993, that is the one approved in December 1992. On the right graph, grey bars indicate only actual policies to which the government allocates funds with the budget law, while black bars refer to interest on public debt and public debt transactions

Primay balance (% of GDP)

6

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the total annual budget is allocated for payments on public debt (Fig. 2.1)—reaching about €300 billion in some years—which severely cuts out a number of choices that a government can make with the budget, especially on the side of long-term investments. Although this is not a new situation, it showed itself more clearly after 1998, possibly as a consequence of the implementation of the European treaties which require Member States to balance their national accounts. On the other side, starting from the beginning of the 1990s, Italy shows a primary balance higher than the European Union and Eurozone average (and other countries, such as France and Germany; see Guardiancich et al. 2022).1 This is impressive and signals how much the virtuous, though wearing, path taken by Italy in the past years is almost nullified by its huge public debt, which is undoubtedly a cumbersome ballast governments have to deal with. Besides the debt issue, a constantly changing, thus increasingly challenging, international context affects the budget’s shape: in a few decades, for example, it has been marked by the reinforcement of the European Union in many national affairs, the Great Recession that started in the United States in 2008 and reached European countries shortly thereafter and the COVID-19 pandemic began in 2020. All of these aspects demand that the country’s budget policy be partly detached from the solely national perspective. The Budget as the Focus of Decades of Research How policy-makers balance the purposes of public budgeting, the issues they prioritise, the effects of the decision-making process on spending choices, the impact of such choices on citizens’ wealth and behaviour, and the context shaping the range of possibilities of politicians have drawn scholars’ attention for a long time. As a quantification of collective political decisions, the budget is the result of government priorities and their adjustment to the external environment and incoming information, shaped by the domestic institutional setting and, more recently, by the supranational backdrop: both of them, mutually, structure the decision-­ making process. Budget changes reflect this set of conditions and, because of the importance and complexity of public budgeting, we now count 1  The primary balance is the difference between earnings and expenditure, not including debt payments.

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about six decades of attempts to develop a satisfactory model for budget changes (among other Davis et al. 1966, 1974; Jones et al. 2009, 2014; Padgett 1981). The literature on the topic is extremely vast in its theoretical, methodological and empirical scope (Jacoby and Schneider 2001), going from the impact of fiscal rules and domestic and external constraints on governments’ choices (Doray-Demers and Foucault 2017; Gandrud and Hallerberg 2017; Hallerberg et  al. 2007) to the way in which governments trade off funds among multiple policy areas (Breunig and Busemeyer 2012; Lipsmeyer et  al. 2017). Another overarching approach addresses the distribution of changes in budgetary commitments, through the lens of the Punctuated Equilibrium Theory (henceforth PET) (Baumgartner and Jones 1993; Jones and Baumgartner 2005a) which studies moments of stability and changes in policy dynamics. Older research, more process-­ oriented, looked at the bureaucratic levels involved in the decision-making process and the organisational logics therein to explain policy outcomes and the level of budgetary changes (Padgett 1980, 1981). Qualitative studies, on their side, departing from the insight of cognitive sciences which argues that the way people frame an issue in their minds has a substantial impact on their actions and choices in that domain, are more interested in frames and policy ideas (Hall 1993; Karremans 2021; Schmidt 2010). Each of these lines of research has budgetary policy at its core, although they aim to explain different mechanisms and outcomes. Despite the different intellectual traditions and methodological approaches, most of these lines of research have reached similar conclusions about rules dominating policy changes (Baumgartner 2013). However, in spite of this suggestion, attempts to reconcile theories of budgetary changes are extremely rare. Which theory can we rest on in order to understand budgetary changes?

2.3  The Evolution of Studies on Budget Changes As the budget can be conceived of as a container where all public policies take shape, we first need to know how policy changes occur. Is public governance an erratic process or a meticulous and deliberate one? An increasing consensus in political science supports the first option, meaning that public governance approaches an erratic process. How did we get to this point?

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To find the answer, we need to go back to Charles Lindblom’s theory of Incrementalism (Lindblom 1959, 1965). He theorised that policy-­ makers are constrained in their decisions by the institutional characteristics and the limited availability of resources, thus the decision-making process ends up being incremental, characterised by decisions that slightly depart from the status quo. Policy-makers are far from being fully rational and their myopic behaviour, along with the unavoidable ‘partisan interdependence’ (the social interactions typical of a decision-making process) (Lindblom 1965), leads them to make the choice upon which the largest number of actors agree, usually the closest to the status quo. Does this mean that relevant changes cannot happen? Of course, no. To the fundamental pattern highlighted by Lindblom, Kingdon added a crucial part. Policy processes follow a stable and incremental pattern of changes until a ‘policy window’ (Kingdon 1984) opens up, setting up the conditions for major policy modifications. During such a short-lived moment of opportunity, the conditions for overcoming negative feedback—one of the two types of forces that act in policy processes (the other is positive feedback)—are created. Negative feedback implies a thermostatic-type process, where forces react against triggering factors and rein in any attempt at deviation from the status quo, maintaining the equilibrium (Baumgartner and Jones 2002; Jones and Baumgartner 2005a). The disturbance of positive feedback is able to generate a change, which in turn begets another change, carrying on the risk of contagion (Jones and Baumgartner 2012). Despite the different labels2 that different scholarship has assigned to these rare and brief moments of opportunity, what is clear is that radical modifications mostly occur in conjunction with a crisis. Not by chance, the Greek word κρίνω—which is the root word of crisis—means to discern, to evaluate, thus to choose. Basically, when a sudden and unexpected event happens—most of the time caused by an external shock—decision-makers have to decide how to react to the new condition. In this context, major changes follow either a redefinition of the problem, which enters the scope of work of the public administration, or a renewed consensus over the tools to solve the problem. While evidence about the long-lasting pattern of stability shaken by sudden moments of disruption has grown over time, scholars have long missed the opportunity to provide a proper explanation of the mechanism behind the opening of policy windows and their infrequency. 2  For instance: ‘issue-attention cycle’, ‘positive-feedback loops’, ‘policy cascades’, ‘waves’, ‘slippery slopes’ (Arthur 1989; Bikhchandani et al. 1992; Downs 1972; Pierson 2000).

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How Disproportionate Information-Processing Works Into this vacuum, Baumgartner and Jones (1993; Jones and Baumgartner 2005a) first placed their theory of disproportionate information processing, and later developed the Dynamic Model of Choice for Public Policy (DMCPP), which is currently ‘the most serious attempt to formulate a formal explanatory model of policy and budget dynamics’ (Jensen et al. 2016). Departing from the Bounded Rationality Model of the Nobel Prize winner Herbert Simon (1947, 1983, 1991), who criticised the commonly held assumption in economic studies that actors are fully rational and can make the best choice (the one that maximises benefits and minimises costs), Jones and Baumgartner studied how bounded rationality impacts the agenda-setting process. They found that cognitive limits of the decision-makers allow them to process information just  intermittently and not fully rationally, which explains the occurrence of both periods of incrementalism and windows of opportunity with major disruptions. The consequence is that any complex human decision-making process generates a punctuated equilibrium, characterised by the incessant struggle between negative and positive feedback (Baumgartner and Jones 2002). Institutional boundaries, or ‘frictions’, reinforce this mechanism. Investigating scholarships on natural science, and particularly the work of the palaeontologists Gould and Eldredge (1977),3 who revealed that the most usual path of evolution is made by periods of stasis interrupted by sporadic moments of punctuation, Jones and Baumgartner were first to unveil how policy processes similarly occur. Thus, when policy processes are involved, what exactly are these opposing forces and how do they operate? The authors identified two distinct processes which impede the transformation of inputs into policy change and called them cognitive and institutional frictions. 3  Species spend most of their time in stasis, where small genetic differences exist without affecting the structural features of the organism. Genetic variations in these periods are always present but not sufficiently forceful to override natural barriers to major transformations. When pressures from the external environment match the internal genetic pressure for change, a moment of transformation occurs. Existing fossil records have confirmed the consistency of these predictions (Gould 2002). The natural world presents another blatant example of frictions, that is, earthquakes. The process that begets earthquakes is a typical stick-slip dynamic, where the tectonic plates are subject to forces that hold them, while the earth’s core pushes on the plates. When there is too much pressure, the plates can no longer manage to slide and adjust marginally, so they slip explosively, generating earthquakes. This configuration of stability and radical upheavals is present across such different fields as natural, organisational, technological and social sciences (Gersick 1991).

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Cognitive Frictions On the one hand, the bounded rationality—cognitive frictions—does not allow policy-makers to process information rationally and simultaneously, incentivising them to focus on a small set of issues, usually the same that received attention during the previous time period, without any drastic shift. They reconcile cognitive boundaries by developing and using heuristics, or cognitive shortcuts, so that new decisions can be built on habits (Margolis 1987). Thanks to these, policy-makers manage to keep out a lot of unnecessary and redundant information but, at the same time, they risk leaving behind new, relevant information that would increase or simplify the comprehension of the problem. In fact, these additional pieces of knowledge are never actively taken into account (Jones 1994a, 1999, 2001; Simon 1947): this is precisely the reasoning this scholarship uses to talk about disproportionate information processing. The consequence of this general pattern, characterised by moments of punctuation, is serious, as it signals a low capacity for policy-makers to be responsive to an ever-­ changing context. In contrast, when policy-makers repeat decisions and adjust the status quo little by little, they can avoid—or at least reduce—the likelihood of falling into major mistakes, with positive implications for the decision-­ making process. In this regard, studying public budgeting, Davis et  al. (1966) demonstrated that incremental budgeting is extremely helpful for agencies as they can easily and better plan future courses of action. This happens at a more micro level, according to the example provided by Andersen and Mortensen (2010). The degree of incrementalism of school budgets affects students’ performance; that is, controlling for socio-­ economic variables, students attending schools with more volatile budgets have lower standardised test scores. All in all, it has been proven that an incremental outcome mirrors more comprehensive information processing, while disruptions are symptomatic of cognitively bounded and inefficient decisional processes. Institutional Frictions Institutions are the second factor hindering policy change. This has been at the core of scholars’ debate on policy processes since Padgett (1981) noticed that different information-processing models bring about different paths of policy change. He developed a hierarchical model wherein

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different organisational logics and cultural and professional norms belong to the various agencies responsible for budgetary decisions and outcomes. The observation of a specific pattern of policy modifications allows us to make inferences about the underlying political and governmental processes. Clearly, institutions establish the procedural rules within which the policy-­making process takes place, defining and shaping the possibilities of cooperation between the executive and legislative branches and the transaction and information costs (Buchanan and Tullock 1962; Coase 1937; Jones et  al. 2003; North 1990), and raising the level of frictions with regard to human choices. By doing so, institutions not only stabilise patterns, but also especially erect a threshold that needs to be overcome in order for a policy change to occur (Breunig 2011): this limits the system’s capability of prioritising issues and problems. It follows that a system’s ability as an information processor is not constant, thus instability varies over time and produces either hyper-incrementalism or punctuations. The former is the norm because of the high level of frictions raised by institutions which makes the process extremely stable. Then, policies lurch forward after a huge boost that creates a new temporary equilibrium (Jones and Baumgartner 2005a). During usual moments of stasis, the inertia and disproportionate information processing do not allow for moderate changes (either increases or reductions). This leads to a basic prediction: institutions that allocate attention more evenly across issues and adapt to new information more smoothly and rationally should produce more moderate changes, not just tiny or extreme modifications. Several pieces of evidence support the punctuation hypothesis and demonstrate that while cognitive limits are ever-present, the level of institutional frictions varies according to the institutional design, although all kinds of systems generate patterns of punctuated change. In this respect, the lower boundary of policy instability is set by human cognitive limits— as no institutional design can do away with them (Baumgartner et  al. 2009: 615)—but efficient institutional systems can somewhat mitigate disruptions. That depends, however, on the moment in the policy-making process, as the level of institutional frictions—and, thus, of punctuations— rises as we move from inputs (congressional hearings and bill introductions) to outputs (such as budgets) (Bevan and Jennings 2014; Jones et al. 2003; Baumgartner et al. 2009).

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2.4  The Shape of Budget Changes: Hyper-­incrementalism and Frictions Budgetary policy has always been at the core of scholars’ interest, departing from the famous ‘law of increasing state activity’ (Wagner 1890), which looked for reasons to explain why public finance had slowly but almost continuously expanded. The incremental model had its first application on the study of budgetary changes with the contribution of Wildavsky (1964) and colleagues (Davis et al. 1966), who demonstrated that ‘the largest determining factors of the size and content of this year’s budget is the last year’s budget’ (Wildavsky 1984: 13). Basically, the legislator decides how to allocate funds by simply adjusting the expenditures of the previous year, either slightly increasing or reducing them. The departure from the incremental model and a first demonstration of the existence of policy windows in budget studies arrived a couple of decades later, thanks to Padgett (1980, 1981), who linked agenda-setting scholarship with the distribution of changes in public policy. Applying a stochastic process to budget dynamics for the first time,4 he proved that government spending is not distributed normally, as it was originally assumed by the incremental model. A distribution of budgetary changes which behaves according to the incremental model should produce a Gaussian curve (a normally distributed curve, which is the basis for comparison of other curves). Instead, Padgett showed that the distribution of budgetary changes has clustered tails and a high central peak, with excessive kurtosis (Fig. 2.2). Later, the increasing availability of time-series data on many policy domains and countries—all displaying the same shape of distribution of budgetary changes—has demonstrated that policy-makers do not allocate attention evenly across issues. Empirical analysis proves the meticulous-planner model of public policy to be wrong. Disproportionate Process, Disproportionate Curve Building on the disproportionate information processing with the incremental model, Jones and Baumgartner (2005a) paved the way for the distributional analysis in public policy literature, presenting an overarching theory equipped with analysis of the distribution of changes. The authors, 4  Until that moment, studies on budgeting mainly employed regression-based models because of the limited availability of data, which allowed scholars to analyse only a few years and policy domains (Davis et al. 1966, 1974).

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Central peak with no change or tiny changes

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Weak shoulders of moderate changes 2

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100

Fat tails with big changes

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Fig. 2.2  Example of a leptokurtic distribution of budgetary changes. Note: the graph shows the shape of a leptokurtic distribution of budget changes (grey bars) and of a Gaussian curve (red dashed line). The x-axis signals the magnitude and the y-axis shows the frequency of yearly changes. The right side of the distribution is bounded at +100 per cent for visual purposes. The graph is drawn from data described in Chap. 5 (N = 1852)

taking as a reference point a normally distributed curve (wherein the highest number of cases fall into the shoulders, which represents a small departure from the status quo), illustrated that the distribution of budgetary changes has a slender peak (i.e. tiny or no change at all), weaker shoulders of moderate changes and fatter tails with upheavals (Fig. 2.2). Statistically speaking, the peakedness of a distribution is called kurtosis, so this non-normal distribution with an excess of cases in the centre and a lot of outliers is called leptokurtic. That shape of the curve proved that the frequency distribution of budgetary changes is punctuated, with hyper-­ incremental modifications being the norm most of the time. Visually, a smooth adaptation to new incoming information and a rational decision-­ making process would give rise to medium adjustments, that is, normally distributed policy outputs. Instead, the leptokurtic shape of the frequency distribution supports the disproportionate information-processing model.

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Several studies confirmed this ever-present evidence across different institutional settings, governmental regimes, levels of government and policy venues, despite a few differences across policy domains, allowing the formulation of a strong empirical generalisation: the distribution of changes in budgetary policy is a Paretian or power function.5 From an information-processing perspective, we know that when decision-makers rely on several sources of information and take a decision combining all of those pieces, the limit of the distribution of that information is Gaussian, as explained by the Central Limit Theorem (CLT). Basically, if politicians are able to incrementally adjust this year’s budget from the previous year’s, considering incoming signals and reacting proportionally, the result will be a normal distribution of budgetary changes. This assumption is true as long as none of the streams of information is disproportionately weighted and the streams are not highly correlated (Jones and Baumgartner 2005b). In fact, the incremental model is an exceptional case in which the outcome is proportionate to the strength of the input signals. That means that it occurs when, and if, the government has a high organisational and cognitive capacity to decrease the effect of institutional obstructions to reactive policy-making—and manages to do so. In contrast to this model, however, there are real-world situations, in which decision-makers process information disjointedly and select only some issues to prioritise, inevitably causing deviations from the Gaussian that result in fat-tailed distributions (Jones and Baumgartner 2005b). So, what are the determinants of this shape of budgetary changes? As already shown, the explanation has to be found in cognitive and institutional frictions. The former determine the possibility and degree of attention-­shifting, which has a crucial role in bringing forward policy change (Jones 2001: 84–107), as it helps to surmount the barriers erected by institutional frictions. However, although swings of attention are necessary (but insufficient) conditions to lead to policy punctuations (Baumgartner and Jones 2002, 2015), the budget venue has appeared on many occasions to be almost non-responsive to attention-shifting (Bevan and Jennings 2014). Institutions, in such a rigid venue, matter considerably more. In fact, institutions involved in the budget are the strongest compared to all other policy venues, as the decisional and transactional 5  Without going into too much detail, let us say that distributions can be placed along a continuum from the thinnest (normal distribution; fewer punctuations) to the heaviest tails (Paretian distribution; more punctuations) (Jones et al. 2003).

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costs are extremely high (Jones et al. 2003). Frictions therein, by being stronger, make the frequency distribution of budgetary changes more leptokurtic, with incredibly stable and bulky tails (Jones et al. 2009).

2.5  The Decision-Making Process: The Government Versus the Parliament There is no doubt that frictions hinder the process of budgetary change while accumulating the pressure which eventually explodes into punctuations. The institutional design is in large part responsible for this dynamic. The strength of each state power, for example the government and the parliament, and the balance of power between the two (Martin and Vanberg 2005, 2011) determine the degree of change over time but also during the financial year. In parliamentary democracies, the parliament shares the power of the purse with the government (Wehner 2006), meaning that it reviews and modifies the budget bill proposed by the government. The power of the parliament vis-à-vis the government in supervising and controlling the budget is different across countries, which can be grouped into those adopting a ‘contract model’ between the institutional, political and social actors, and the ‘delegation model’ where the government, represented by the Minister of Finance, concentrates the power in its hands (Hallerberg et al. 2007). This means that, along with the institutional design of each country, budgetary changes are also determined by the strategic interaction of institutional actors during the decision-making process (Hallerberg 2004; König and Troeger 2005; Romer and Rosenthal 1978; Tsebelis and Chang 2004). Thus, the outcome (i.e. the budget law) which shows the budget as extremely firm over time may hide the attempts at change pursued by the government, which is stopped by the parliament. This would not be surprising, as in parliamentary democracies governmental bills are often modified during the law-making process. Institutional arrangements which distribute political power between different actors—for example legislative assembly with two chambers—show a high level of policy stability (Buchanan and Tullock 1962; Krehbiel 1996; Riker 1992), because moving away from the status quo requires the agreement of all veto players (Tsebelis 1999, 2002). In particular, bills dealing with several policy dimensions and complex subjects come up substantially modified from the parliamentary debate (Pedrazzani and Zucchini 2013).

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Bringing the Budget into the Study of Decision-Making Although the budget is usually excluded from the analysis of how the parliament alters original bills because it is a sui generis legislation with its own dynamics, the distributive politics exposes the budget to extensive modifications. Political actors could try to increase expenditures to those programmes pledged to their own constituency while distributing the corresponding costs among all taxpayers. This tendency, known as ‘law of 1/n’ (Alt 2002; Weingast et al. 1981), demonstrates that the size of the budget inflates as the number of decision-makers increases, because of a common inclination towards the universal logrolling. Of course, the number of decision-makers is not sufficient to explain why and to what extent the budget bill diverges from the budget law. A crucial aspect is represented by preferences and strategic considerations of actors, which determine their ‘cooperative’ or ‘competitive’ nature (Zohlnhöfer 2009). Intuitively, the likelihood of policy change increases when cooperative veto players participate in the decision-making process, as their preferences do not contrast with changes to the status quo, and they have strong incentives to cooperate. In some cases, when cooperative veto players are participating, actors may also accept to adjust or give up their policy position in favour of a compromise (so-called sacrifice ratio) (Ganghof 2003). Conversely, competitive veto players do not share the government’s preferences and are usually blamed for the obstruction of policy changes (Birchfield and Crepaz 1998; Zohlnhöfer 2009). Veto players adopting a vote-seeking strategy or trying to favour their constituency could ask the government for incommensurate concessions which lead to a growing number of micro adjustments and hamper the possibility for even a cohesive government (Zohlnhöfer 2009) to pursue its spending goals. This is facilitated by the fact that institutional and partisan veto players in parliamentary systems are strictly linked, as the survival of the government depends on parliamentary support. Therefore, the probability of change also depends on the congruence of veto players, which is mostly defined as their ideological distance, and their cohesion as a collective veto player (Tsebelis 1995). Previous studies of budgetary policy have used the budget law to study the percentage change from one year to another and to demonstrate the punctuated equilibrium pattern of budgetary changes. This is self-­ explanatory, as the budget law presents the actual amount of resources allocated for each spending programme at the end of the year and can no

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longer be modified. However, analysing only the budget law—the result of months of discussion, bargain and changes first within the cabinet, then between the government and the parliament and, later, between the chambers of the parliament—without considering the budget bill at all blurs the comprehension of policy-making dynamics which determine the budgetary outcome. To give an example, the balance of power between the Italian government and the parliament has been reorganised significantly over decades. In general terms, until the beginning of the 1990s the budget policy lacked a leading actor able to carry out the process without succumbing to the distributive drift of the parliament despite numerous attempts to eradicate this habit through a series of reforms. The analysis of that period tells the story of very slack control over spending, caused by the absence of the necessary monitoring tools and even more so by the resort to ‘creative accounting’ gimmicks implemented by the ‘guardians of public expenditure’ (Verzichelli 1999). The overrunning of spending targets planned in budget documents always needed to resort to corrective measures. In the following decades, many things changed, both as a consequence of domestic regulations and praxes and of the strengthened process of the European Economic Governance (see Chap. 3), affecting the room for manoeuvre and the strength of each actor vis-à-vis the others. Studying the balance of power between the parliament and the government elucidates the real causes of (the lack of) change and the policy processes, which incorporate both policy and political considerations (Jones et al. 2014). Ultimately, it is impossible to separate budgeting from politics (Jones and Baumgartner 2005a).

2.6  Discussion It was almost eight decades ago when Key (1940) drew attention to the fact that no budget theory existed except for a normative theory of budget allocation, which nevertheless suffered from a lack of empirical support. Nowadays, many public policy scholars are mired in a dispute among the many strings of research, mostly dating back to the 1980s or even before, without being able to move forward and implement ideas and explanations provided in that period (Howlett et al. 2016). This deadlock originates from the fact that intellectuals still conceive of these theories as mutually exclusive rather than trying to merge them into an overarching framework (Cairney 2013; John 2015, 2018). However, fundamental

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progress has been made, especially over the past few decades, thanks to scholars who introduced the study of human cognitive processes into the study of policy changes (Jones 1994b, 1999, 2017; Jones and Baumgartner 2005a, b). In this chapter, we reviewed the evolution of theories about budget changes and gave the reader the theoretical tools to understand the dynamics of the Italian case that we will analyse in the next chapters. We will rest on the PET, which claims that countervailing forces exist in any complex human decision-making process and create a conflict which begets a punctuated equilibrium. In fact, as an extremely complex ‘policy container’ (Rubin 2017), but also with a notable political role which substantially diverges from that of other policy decisions (Dente 2014), budgeting does not necessarily give rise to innovative single policies. Still, budget changes have much to say about the policy-making process, a country’s institutional design and actors’ rationality, while at the same time mirroring the international context, which shapes national dynamics and affects choices. Evidently, the firmness of the budget may hide a specific (im)balance of power between state actors and supranational ones, making the budget a powerful instrument for analysing a country’s policy and politics. All of these aspects will be analysed throughout the book, starting with the normative context—external and internal—that sets the boundaries for the Italian budget policy, described in Chap. 3.

References Alt, James E. 2002. Monetary and Fiscal Policy: Exploring Credibility, Transparency, Accountability, and Institutions. In Political Science: State of the Discipline. Washington, DC: American Political Science Association. Andersen, Simon Calmar, and Peter B.  Mortensen. 2010. Policy Stability and Organizational Performance: Is There a Relationship? Journal of Public Administration Research and Theory 20 (1): 1–22. Arthur, W.  Brian. 1989. Competing Technologies, Increasing Returns, and Lock-In by Historical Events. The Economic Journal 99 (394): 116–131. Bastasin, Carlo, Manuela Mischitelli, and Gianni Toniolo. 2019. Living with High Public Debt: Italy 1861–2018. LUISS School of European Political Economy, Working Paper 11/2019. Baumgartner, Frank R. 2013. Ideas and Policy Change. Governance 26 (2): 239–258. Baumgartner, Frank R., Christian Breunig, Christoffer Green-Pedersen, Bryan D.  Jones, Peter B.  Mortensen, Michiel Nuytemans, and Stefaan Walgrave.

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2009. Punctuated Equilibrium in Comparative Perspective. American Journal of Political Science 53 (3): 603–620. Baumgartner, Frank R., and Bryan D.  Jones. 1993. Agendas and Instability in American Politics. Chicago: University of Chicago Press. ———. 2002. Policy Dynamics. Chicago: University of Chicago Press. ———. 2015. The Politics of Information: Problem Definition and the Course of Public Policy in America. Chicago: University of Chicago Press. Beramendi, Pablo, Silja Häusermann, Herbert Kitschelt, and Hanspeter Kriesi. 2015. The Politics of Advanced Capitalism. Cambridge: Cambridge University Press. Bevan, Shaun, and Will Jennings. 2014. Representation, Agendas and Institutions. European Journal of Political Research 53 (1): 37–56.  Bikhchandani, Sushil, David Hirshleifer, and Ivo Welch. 1992. A Theory of Fads, Fashion, Custom, and Cultural Change as Informational Cascades. Journal of Political Economy 100 (5): 992–1026. Birchfield, Vicki, and Markus M.L. Crepaz. 1998. The Impact of Constitutional Structures and Collective and Competitive Veto Points on Income Inequality in Industrialized Democracies. European Journal of Political Research 34 (2): 175–200. Breunig, Christian. 2011. Reduction, Stasis, and Expansion of Budgets in Advanced Democracies. Comparative Political Studies 44 (8): 1060–1088. Breunig, Christian, and Marius R.  Busemeyer. 2012. Fiscal Austerity and the Trade-off between Public Investment and Social Spending. Journal of European Public Policy 19 (6): 921–938. Buchanan, James M., and Gordon Tullock. 1962. The Calculus of Consent. Ann Arbor: University of Michigan Press. Cairney, Paul. 2013. Standing on the Shoulders of Giants: How Do We Combine the Insights of Multiple Theories in Public Policy Studies? Policy Studies Journal 41 (1): 1–21. Coase, Ronald H. 1937. The Nature of the Firm. Economica 4 (16): 386–405. Davis, Otto A., Michael A.H. Dempster, and Aaron B. Wildavsky. 1966. A Theory of the Budgetary Process. The American Political Science Review 60 (3): 529–547. ———. 1974. Towards a Predictive Theory of Government Expenditure: US Domestic Appropriations. British Journal of Political Science 4 (4): 419–452. Dente, Bruno. 2014. Understanding Policy Decisions. Cham: Springer. Doray-Demers, Pascal, and Martial Foucault. 2017. The Politics of Fiscal Rules within the European Union: A Dynamic Analysis of Fiscal Rules Stringency. Journal of European Public Policy 24 (6): 852–870. Downs, Anthony. 1972. Up and Down with Ecology  – The ‘Issue-Attention Cycle’. 28 (summer): 38–50.

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Gandrud, Christopher, and Mark Hallerberg. 2017. Interpreting Fiscal Accounting Rules in the European Union. Journal of European Public Policy 24 (6): 832–851. Ganghof, Steffen. 2003. Promises and Pitfalls of Veto Player Analysis. Swiss Political Science Review 9 (2): 1–25. Gersick, Connie J.G. 1991. Revolutionary Change Theories: A Multilevel Exploration of the Punctuated Equilibrium Paradigm. The Academy of Management Review 16 (1): 10–36. Gould, Stephen J. 2002. The Structure of Evolutionary Theory. Harvard: Harvard University Press. Gould, Stephen J., and Niles Eldredge. 1977. Punctuated Equilibria: The Tempo and Mode of Evolution Reconsidered. Paleobiology 3 (2): 115–151. Guardiancich, Igor, Mattia Guidi, and Manuela Moschella. 2022. Il sistema economico tra declino e riforme. In G.  Baldini and A.  Pritoni (eds),  Il Sistema Politico Italiano. Cittadini, attori e istituzioni. Milano: Mondadori Università. Hall, Peter A. 1993. Policy Paradigms, Social Learning, and the State: The Case of Economic Policymaking in Britain. Comparative Politics 25 (3): 275–296. Hallerberg, Mark. 2004. Domestic Budgets in a United Europe: Fiscal Governance from the End of Bretton Woods to EMU. Ithaca: Cornell University Press. Hallerberg, Mark, Rolf Strauch, and Jürgen von Hagen. 2007. The Design of Fiscal Rules and Forms of Governance in European Union Countries. European Journal of Political Economy 23 (2): 338–359.  Howlett, Michael, Allan McConnell, and Anthony Perl. 2016. Weaving the Fabric of Public Policies: Comparing and Integrating Contemporary Frameworks for the Study of Policy Processes. Journal of Comparative Policy Analysis: Research and Practice 18 (3): 273–289.  Jacoby, William G., and Saundra K.  Schneider. 2001. Variability in State Policy Priorities: An Empirical Analysis. The Journal of Politics 63 (2): 544–568. Jensen, Jens Ledet, Peter B. Mortensen, and Søren Serritzlew. 2016. The Dynamic Model of Choice for Public Policy Reconsidered: A Formal Analysis with an Application to US Budget Data. Journal of Public Administration Research and Theory 26 (2): 226–238. John, Peter. 2015. The Three Ages of Public Policy: Theories of Policy Change and Variation Reconsidered. SSRN Scholarly Paper ID 2286711. Rochester, NY: Social Science Research Network. ———. 2018. Theories of Policy Change and Variation Reconsidered: A Prospectus for the Political Economy of Public Policy. Policy Sciences 51 (1): 1–16. Jones, Bryan D. 1994a. Reconceiving Decision-Making in Democratic Politics: Attention, Choice, and Public Policy. Chicago: University of Chicago Press. ———. 1994b. A Change of Mind or a Change of Focus? A Theory of Choice Reversals in Politics. Journal of Public Administration Research and Theory: J-PART 4 (2): 141–177.

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———. 1999. Bounded Rationality. Annual Review of Political Science 2 (1): 297–321. ———. 2001. Politics and the Architecture of Choice: Bounded Rationality and Governance. Chicago: University of Chicago Press. ———. 2017. Behavioral Rationality as a Foundation for Public Policy Studies. Cognitive Systems Research 43: 63–75.  Jones, Bryan D., and Frank R. Baumgartner. 2005a. The Politics of Attention: How Government Prioritizes Problems. Chicago: University of Chicago Press. ———. 2005b. A Model of Choice for Public Policy. Journal of Public Administration Research and Theory 15 (3): 325–351.  ———. 2012. From There to Here: Punctuated Equilibrium to the General Punctuation Thesis to a Theory of Government Information Processing. Policy Studies Journal 40 (1): 1–20.  Jones, Bryan D., Frank R. Baumgartner, Christian Breunig, Christopher Wlezien, Stuart Soroka, Martial Foucault, Abel François, et al. 2009. A General Empirical Law of Public Budgets: A Comparative Analysis. American Journal of Political Science 53 (4): 855–873. Jones, Bryan D., Tracy Sulkin, and Heather A. Larsen. 2003. Policy Punctuations in American Political Institutions. American Political Science Review 97 (1): 151–169. Jones, Bryan D., László Zalányi, and Péter Érdi. 2014. An Integrated Theory of Budgetary Politics and Some Empirical Tests: The U.S.  National Budget, 1791–2010. American Journal of Political Science 58 (3): 561–578. Karremans, Johannes. 2021. Political Alternatives under European Economic Governance: Evidence from German Budget Speeches (2009–2019). Journal of European Public Policy 28 (4): 510–531. Key, Valdimer O. 1940. The Lack of a Budgetary Theory. American Political Science Review 34 (6): 1137–1144.  Kingdon, John W. 1984. Agendas, Alternatives, and Public Policies. Boston: Little, Brown. König, Thomas, and Vera E. Troeger. 2005. Budgetary Politics and Veto Players. Swiss Political Science Review 11 (4): 47–75.  Krehbiel, Keith. 1996. Institutional and Partisan Sources of Gridlock: A Theory of Divided and Unified Government. Journal of Theoretical Politics 8 (1): 7–40. Kriesi, Hanspeter, Edgar Grande, Martin Dolezal, Marc Helbling, Dominic Höglinger, Swen Hutter, and Bruno Wüest. 2012. Political Conflict in Western Europe. Cambridge: Cambridge University Press. Lindblom, Charles E. 1959. The Science of ‘Muddling Through’. Public Administration Review 19 (2): 79–88.  ———. 1965. The Intelligence of Democracy: Decision Making Through Mutual Adjustment. New York: Free Press.

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Lipsmeyer, Christine S., Andrew Q.  Philips, and Guy D.  Whitten. 2017. The Effects of Immigration and Integration on European Budgetary Trade-Offs. Journal of European Public Policy 24 (6): 912–930. Luciani, Massimo. 2019. Bilancio, Forma Di Governo, Forma Di Stato. In C. Bergonzini (ed), Costituzione e Bilancio. Milano: FrancoAngeli. Margolis, Howard. 1987. Patterns, Thinking, and Cognition: A Theory of Judgment. Chicago: University of Chicago Press. Martin, Lanny W., and Georg Vanberg. 2005. Coalition Policymaking and Legislative Review. American Political Science Review 99 (1): 93–106. ———. 2011. Parliaments and Coalitions: The Role of Legislative Institutions in Multiparty Governance. Oxford: Oxford University Press. North, Douglass C. 1990. Institutions, Institutional Change and Economic Performance. Political Economy of Institutions and Decisions. Cambridge: Cambridge University Press. OECD. 2019. Budgeting and Public Expenditures in OECD Countries. Paris: OECD Publishing. Ólafsson, Stefán. 2019. The Political Economy of Crisis Responses. In Welfare and the Great Recession: A Comparative Study, 43–58. Oxford: Oxford University Press. Padgett, John F. 1980. Bounded Rationality in Budgetary Research. The American Political Science Review 74 (2): 354–372.  ———. 1981. Hierarchy and Ecological Control in Federal Budgetary Decision Making. American Journal of Sociology 87 (1): 75–129. Pedrazzani, Andrea, and Francesco Zucchini. 2013. Horses and Hippos: Why Italian Government Bills Change in the Legislative Arena, 1987-2006: Horses and Hippos. European Journal of Political Research 52 (5): 687–714.  Pierson, Paul. 2000. Increasing Returns, Path Dependence, and the Study of Politics. The American Political Science Review 94 (2): 251–267. Piketty, Thomas. 2014. Il capitale nel XXI secolo. Milano: Bompiani. Riker, William H. 1992. The Justification of Bicameralism. International Political Science Review 13 (1): 101–116. Romer, Thomas, and Howard Rosenthal. 1978. Political Resource Allocation, Controlled Agendas, and the Status Quo. Public Choice 33 (4): 27–43. Rubin, Irene S. 2017. The Politics of Public Budgeting: Getting and Spending, Borrowing and Balancing. 8th ed. Thousand Oaks: SAGE CQ Press. Schiavo-Campo, Salvatore. 2018. Running the Government: Public Administration and Governance in Global Context. New York: Routledge. Schmidt, Vivien A. 2010. Europe’s Crisis of Legitimacy: Governing by Rules and Ruling by Numbers in the Eurozone. Oxford: Oxford University Press. Simon, Herbert A. 1947. Administrative Behavior. New York: Macmillan Co. ———. 1983. Reason in Human Affairs. Stanford, CA: Stanford University Press. ———. 1991. Organizations and Markets. Journal of Economic Perspectives 5 (2): 25–44.

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CHAPTER 3

Budgeting Policy Within the Union: Italy in the European Context

3.1   Introduction Any decision-making process is not just enclosed in the domestic context where it unfolds. Rather, it is deeply linked with the context within which political decisions are made and are shaped accordingly. We are used to thinking that the domestic environment, with its well-established practices and dynamics, has the greatest influence on the final policy outcome. Even more so when budgeting policy—which has always been a purely national matter—is concerned. Is it really true or have things changed lately? In the current European context, even the budget must meet the regulations of the supranational level. The encounter between the two levels is not always smooth. Evidently, countries tend to reluctantly obey constraints posed by an external actor, especially as far as public money is concerned. In fact, public budgeting of European countries is subject not only to a predetermined schedule of the domestic budgetary process, but also to economic and fiscal limits that affect a national government’s choices in terms of policies. While this applies to all European countries, the relationship between Italy and the Union has been rather harsh on more than one occasion, on this aspect. However, European Economic Governance is not simply a game with someone who dictates the rules (the European Union) and someone else who endures them (Member States). In fact, even national governments may put the Union in danger. During the Eurozone crisis, the Italian economic and political situation—and that of the other main debtor © The Author(s), under exclusive license to Springer Nature Switzerland AG 2023 A. Cavalieri, Italian Budgeting Policy, https://doi.org/10.1007/978-3-031-15447-8_3

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countries (e.g. Ireland, Portugal, Spain and Greece)—and the risk of returning to national currencies (Glencross 2014) did constitute a threat to the stability of the Eurozone for many years (Frieden and Walter 2017). Shedding lights on the strict connection between the supranational level and domestic regulations is thus fundamental to understanding the complex relation that affects European governance, national politics and even more budget policy. Therefore, the chapter begins by sketching out the most important phases that marked the history of Italian national accounts from the 1980s until today. Then, I present the most important rules and praxes of the Italian budgetary process, and the evolution of regulations at the European level, which elucidate the balance of power between the many actors involved: a crucial aspect that will assist the reader in the comprehension of the analysis conducted in Chaps. 5–7.

3.2   A Brief History of Italian National Accounts Italy has been, for a few years now, one of the most usual suspects to incur sanctions from the European Union because of its untidy accounts and its huge public debt. The watchword for the Italian economy is simply decline (Capussela 2019), a multifaceted decline. We are talking not only of the economic side, whose worsening is evident particularly if we look at the increasing level of public debt. The Italian decline also overwhelms the political attitude of both citizens and politicians, and therefore depletes the quality of institutions. None of these aspects can be read without considering the others. The collective imagination describes Italy as the ‘sick man of Europe’. In fact, it is not without reason. After WWII, the Italian public debt was at its lowest level (about 20 per cent of GDP) and remained rather stable for more than two decades, thanks to high GDP growth which kept the level of debt over GDP low (Bastasin et al. 2019). The 1970s and 1980s saw the settlement of the structural deficit (the government had to allot about 10 per cent of the annual GDP until the 1980s), caused by the expansion of the modern welfare state—not sufficiently covered by GDP growth— and by the international conjuncture characterised by the oil shocks (1973 and 1979). Radical modifications of the international context did not move at the same pace with a better functioning of national budget institutions, despite the first attempt to set up a real budget cycle. Before that time, no legal framework was in place to regulate the executive and legislative prerogatives in shaping the annual budget appropriations, and all the decisions were demanded through the ordinary law-making process.

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A Troublesome Rise of the Italian Budget Document In 1978 (L. 468/1978), the introduction of the annual financial bill (Della Sala 1988) transformed the budgetary session into the most important decisional process of the year, where the government and the parliament made crucial choices on taxes and spending. Despite that, and regardless of attempts to accord to the government important prerogatives in drafting the budget bill, the lack of proper procedures to regulate the budgetary process continued to downsize the role of the government. This first attempt failed to limit the extreme power of the parliament, and the executive’s steering capabilities in controlling public finance remained quite low. The incremental budgetary cycle remained fragmented (De Ioanna and Goretti 2008) and anchored to a bottom-up approach, where the final expenditure was the result of a long bargaining process among all spending ministers and the MoF acting as moderator during the formulation stage (Pisauro and Visco 2008). In this vacuum, the unconcerned behaviour of Italian governments and of the parliament transformed the financial bill into an omnibus law which distributed micro-sectional dispositions to curry favour with a variety of constituencies, further boosting Italian public debt. The enduring fluidity of the process did not allow use of the budget law as an economic instrument based on temporary economic conditions, nor solicited the introduction of more stringent legislative instruments to rule the process in the medium and long run. This shortfall preserved the disjuncture between the whole budgetary policy and sectoral policies not included therein but rather entrusted to ordinary laws: precisely the mechanism that has paved the way for the extreme expansion of the structural deficit during the previous two decades. For years, the country was forced to recur to higher debt to pay growing interest rates on the debt itself. We must wait until 1988 for a reform (L. 362/1988) which tried to enhance the executive over the parliament during the budgetary process. The new law was aimed at restricting the omnibus content of the financial bill by standardising its content and completely restructuring the budget session, by introducing a compulsory macroeconomic document, the Document of Economic and Financial Planning (Documento di Programmazione Economica e Finanziaria, DPEF) to submit to the parliament a few months before the adoption of the financial bill. The application of a new technique of planning and programming that has set the budgetary session deadline on 31 December also gave birth to a multi-­ annual budget plan. However, the reinforced role of the executive was not supplemented by a necessary improvement of the parliamentary rules of

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procedure and, again, left the budget document exposed to several transformative amendments by the bicameral legislature. Yet, the merit of that reform was to set aside the custom of resorting to a provisional budget (esercizio provvisorio), excessively frequent during the previous decade (Verzichelli 1999), and ensure the respect of the timing for the approval of the budget law (31 December) (see Sect. 3.3). Fruitless Efforts: National Accounts During the Second Republic The most relevant and fast-speed changes happened after the kick-off of the Second Republic (1992–2012). The Maastricht Treaty (1992) activated a phase of convergence (1992–1997) which forced European countries to align their public accounts with the Maastricht parameters, and Italy to strenuous economic and fiscal efforts to ensure its entrance into the first group of European countries joining the single currency. Notoriously, 1992 represents a watershed in the general history of Italian public finance and marked a real change in the policy paradigm: at that time, attention to budget policy from political actors, public opinion and the media rose considerably and a new attitude of responsibility developed from the institutions themselves (Verzichelli 1999). From this moment forward, fiscal policy was fine-tuned along the lines of budgetary consolidation, in order to respect the new economic and fiscal requirements necessary to have balanced accounts, as required by the EU. The initial phase of reconstruction opened up with the budget law for 1993 issued by the Amato I government and went down as the heaviest reform and fiscal correction in Italian republican history, which permitted the country to achieve a primary surplus after more than three decades. This is evident from the gradual reduction of the debt-to-GDP ratio—whose burden had severely increased over two decades, from 34 per cent in 1974 to 119 per cent in 1994 (Bartoletto et al. 2013)—and the level of deficit, precisely during the years of convergence (Fig. 3.1). At this stage, with reforms in the pension system (1995), the job market (1997) and other policy fields (Ferrera and Gualmini 2004), the country went through an extensive privatisation plan between the 1990s and 2000s,1 that hybridised 1  That reforming process was the largest among OECD countries, equivalent to approximately 12 per cent of GDP (Goldstein 2006).

0

500000

1000000

1980

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1985

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1995

Revenues (%)

Expenditure (%)

Year

2000

2005

2010

2015

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Fiscal balance (%)

Debt (%)

0

50

100

150

Percentage of GDP

Fig. 3.1  Main aggregates of national accounts in Italy (1980–2021). Note: the left y-axis signals the GDP level (bars); the right y-axis pertains to expenditure, revenues, fiscal balance and debt (expressed as per cent of the GDP). Data are shown in Table A.1 (Appendix A)

Millions euro

1500000

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the Italian model of capitalism, decreasing the innovation capacity and the economic performance of the country (Simoni 2020). This phase of recovery lasted until 1997 and was carried out mainly through urgent policy packages coexisting with renewed attempts at fiscal adjustments (Verzichelli 1999). Another turning point occurred in 1997. That year the deficit-to-GDP ratio crumbled from 7.3 per cent in 1995 to 3 per cent, thanks in part to a 2.1 per cent reduction in interest payments for the previous year (total expenditure being equal) and a 2.2 per cent increase in total revenues (Giarda et al. 2003), in this way meeting the target set by the European Union. As was common in this period, governments resorted to temporary measures that partially relieved the burden of public accounts while postponing sharper measures until later stages. This is precisely what happened with the budget for 1997, characterised by the putting in place of the so-called Eurotax after an initial phase of spending cutbacks (see also Chaps. 7 and 8). Once Italy ensured its grip on the monetary union, the next step aimed at maintaining budget stability and driving forward the reduction of debt and deficit, during the phase of stability and growth (to borrow the terminology used in European treaties). Effectively, the restrictive fiscal policy implemented during the 1990s brought a contraction of the deficit, especially starting from 1994, which arrived at 1.8 per cent of GDP in 1999, with interest payments on public debt decreasing from 11.9 per cent to 6.5 per cent in 2000 and a primary surplus of 4.1 per cent in 2001 (Giarda et al. 2003). This last achievement came after a decade of remarkable levels of primary surplus ranging around 5 percentage points of the GDP. With the beginning of the new century, we witnessed the stabilisation of debt— with an exceptional financial struggle in 2005 and 2006, when the deficit was at its worst level since 1995 and the debt started to rise again—and to the rapid decline of the primary surplus, which almost reversed its previous enhancement. Then, even the improvement on the side of the debt-to-­ GDP ratio, which had reached its lowest point in 2007 (finally below 100 per cent), was struck by the heavy financial and economic crisis. Inside the Vortex: The Eurozone Crisis and Its Aftermath In 2008 a retreat to negative values of the GDP growth rate took place, along with a resurgence of the debt-to-GDP ratio caused by the sovereign debt crisis in many European countries.

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Italy entered the Great Recession and then the Eurozone crisis already in a troublesome situation, mainly as a result of the previous pattern of modest economic growth and the temporary reduction of the tax burden at the beginning of the 2000s (Guerra and Zanardi 2010), which minimised the range of possibilities for facing the economic downturns. Public accounts underwent a striking deterioration although the spending reduction already implemented with the 2008 budget, which produced net cuts of more than €25 billion, along with higher revenues for the following triennium, marginally alleviated the downturn (Guerra and Zanardi 2010). This was partially simplified by the spending reduction. Nevertheless, that did not exempt the level of debt from rising above 110 per cent with medium-term forecasts expecting an additional 40-point increase. Although the ratio of GDP did not achieve such a peak, for the first time since 1970 the crisis caused a reduction of nominal GDP (3 percentage points) and the highest decrease of real GDP ever (5 percentage points), compared to 1975 (−2.1), 1993 (−0.9) and 2008 (−1) (Pisauro 2010). As at many other times in the history of Italian budgetary planning, the predictions stated in the DPEF—dated July 2008, at the onset of the crisis— which envisaged a nominal and real GDP growth of 3 and 0.9 percentage points, respectively, were wrong.2 The economic crisis contributed dramatically to compounding the condition of national public accounts. It trapped the Italian budgetary policy for some years, causing the highest level of negative GDP growth rate and the growth of deficit and debt ratios, comparable only to those of the 1992 fiscal stress. After 2009, another phase of fiscal adjustments was needed. This was carried out by the Monti government through a spending review and within a changed supranational framework which imposed, constitutionally, the balanced budget rule. In this period, a crucial factor which considerably affected spending choices was the pace of the spread3 that fluctuated for the whole of 2011 between 122 (in April) and 215 (in June) points. In spite of the partial optimism suggested by the 2011 Document of Economy and Finance (DEF), where the government expected to 2  Mistaken economic forecasts for successive years are rather frequent in Italian economic management, where governments tend to optimistically appraise the expected revenues and growth rates more than what it is justifiable and more than the actual level of both (Damonte 2013). 3  The term ‘spread’ refers to the differential between the Italian ten-year benchmark bonds (BTP) and the German Bund.

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achieve the balanced budget by 2014,4 the broader picture of the Italian public accounts was much harsher and looked into an adverse juncture of economic downturn and recessive fiscal policy (Zanardi 2013). In 2012, we witnessed another decrease of both nominal (for the second time in the Italian republican history) and real GDP (−2.8 per cent), while the country was still struggling to recover from the recession. Nevertheless, the deficit-to-GDP ratio came back to the 3 per cent threshold. After the Storm: (Re)constructing a New Economic Pattern The last phase of fiscal and economic reconstruction began in 2014, in a context characterised by an intensive fluctuation of national accounts, determined by the unsteady governments’ propensity to be responsive to European parameters. This phase of constitutionalised austerity revitalised the European role and its stringent macroeconomic surveillance, at the same time triggering harsh criticism at the national level, especially from those political actors alleging a sharp distinction between the two levels of government. The return to a positive sign of the growth rate—although it is irresponsible to talk about an actual economic resurrection—happened only in 2014 and has remained stable around very low rates (the highest value was in 2017 at 1.68 per cent) for all of the following years. The attempt to pursue a balanced budget in this period of restraint was made basically by intensifying the tax burden up to 44 per cent (Pisauro 2013), and after strenuous negotiations with European institutions the country was eventually able to delay the goal. The missed attainment of this target recurred for all of the subsequent years, alongside a systematic failure to reach the financial 4  To accomplish the balanced budget in three years, the government planned cutbacks of 1.2 and 2.3 percentage points of the GDP over the next two years. Nevertheless, it did not manage to achieve the expected result. In this respect, it is possible to distinguish three phases of the evolution of budget policy programming and of its failure, beginning from 2008. The first phase started with the budget for 2009 and foresaw a balanced budget as soon as 2011, which evidently did not take into consideration the upcoming crisis. When the magnitude of the recession became clear, the budget law for 2010 and 2011 did not even mention a balanced budget. The sovereign debt crisis pushed European institutions to narrow the political leeway over national accounts in order to meet the economic and fiscal constraints targeted to recover from the crisis. The last phase is the 2014 one, once again disattained.

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objectives drawn for the next triennium (De Novellis and Signorini 2016). This last phase was characterised by a slackening of the European grip and the deferment of the balanced budget in an effort to execute expansionary budget policy, in the wake of a positive international circumstance starting in 2015, marked by increasing consumption that boosted economic growth, which nevertheless had already lost momentum by 2018 and even more so after the pandemic. The COVID-19 pandemic crisis seems to have given birth to a new phase of solidarity, where the surveillance of the European Commission has become less stringent and more open to deviations. This pattern is visible looking at the main aggregates of Italian public accounts in Fig. 3.1 (see also Appendix A, Table A.1).

3.3  The (Stretched) Pillars of the Italian Budgetary Process National accounts moved along with several transformations occurring at both the domestic and supranational levels. Changes to the European framework and to national regulations largely affect the budgetary outcome. According to the classical literature, the Italian budgetary process typifies a ‘contract model’ where the final decision on the budget is determined by a long bargaining process between all the political actors involved (Hallerberg et al. 2007).5 It was so even before 1992, when the European Union started gaining a foothold in national policies and politics. At the national level, years of reforms tried to overcome the ‘Italian anomaly’ (Lupo 1999: 561) of the 1970s and 1980s, characterised by the centrality of the parliament in driving Italian economic policy and deciding about the allocation of funds, while leaving aside the government as a mediator between the different stances of the majority (Franco 1993; Masciandaro 1996). This story about the government takeover of the budget session

5  The other type of budgetary process is the ‘delegation model’: a procedure-oriented approach, predominant in one-party governments and characterised by a leading cabinet. The delegation approach gives a powerful role to the Minister of Finance, who controls the budget by proposing and legislating without any strong tie from other actors and with a rather ample bargaining power vis-à-vis other spending ministers. This leads to having a sort of veto cabinet with enough power to modify the budget almost unilaterally, if the domestic circumstances or international junctures require interventions, or to simply alter the allocation of resources avoiding a costly negotiation within the executive and between the executive and the legislative.

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can be narrated along the evolution of practices, somewhat better than through the implementation of norms. The Italian budgetary process is structured around three pillars: (a) the certainty of timing (certezza dei tempi di decisione): the budget must be approved by 31 December (L. 362/1988); (b) a prohibition, during the budgetary session, on deliberation over other measures of a financial nature (divieto di trattazione di altri affari); and (c) safeguarding the content of the substantive law attached to the budget6 (tutela del contenuto proprio). The intertwining of these norms has created a breeding ground for an interpretative stretching of the norms themselves, which developed into parliamentary practices that have sometimes bordered on unconstitutionality. To understand the nature and impact of the transformations, it is useful to distinguish between two different moments of the budgetary session: executive planning and legislative approval. Executive Planning: Praxes and Normative Changes Intuitively, the executive planning concerns the power of the government, which has considerably increased in recent years. The role of the Minister of Finance has been strengthened in two directions: by increasing his agendasetting power and by according to him the power to autonomously change or curb expenditures. The first was encouraged by the merging, in 2001, of three ministries into the hands of one single person, the Minister of Economy and Finance. The second started in 2002 with the so-called decreto tagliaspese (DL. 194) and in 2008 (DL. 112) which allowed the Minister of Finance to exploit his legislative power to alter the spending authorisations after the approval of the budget by the parliament (Bergonzini 2014).7 For this reason, the norm remained in force only for one year, but a similar prerogative was granted with L. 163/2016, which gives the Minister of Economy the task of monitoring expenditures and, in case of an imminent deviation, to cut expenditures using his own decree (Bergonzini 2017).8 6  Whether it was the financial law, the stability law (after L. 196/2009) or the budget itself (since L. 243/2012), as stated in art. 11 of these norms. 7  According to art. 81 of the Italian Constitution, the budget is covered by the so-called riserva di legge, meaning that only the parliament can legislate on that issue, while the government cannot. 8  Two limits are in place: one lies in the timing, meaning that a spending deviation can be sorted out during the time span of the ongoing budgetary session; the other concerns the availability of financial resources, so that any spending forecast must be sufficient to support that deviation.

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The leverage of the Minister of Economy in the case of spending deviations is strictly related to the presence of mandatory financial backing, which in turn redirects to the possibility of the government making use of the safety clauses (clausule di salvaguardia)9 in case of deviations. The government has overused this automatic system and, in several cases when not required by spending deviations, has used automatic spending adjustments to protect its fiscal targets, increasingly removing responsibility from the decision-makers while guaranteeing the presence of concrete financial backing assets (Bergonzini 2017). This pathology was partly corrected by a budget session reform issued in 2016 (see above), which asks the government to correct spending deviations through decrees (in cases where deviations pertain to the budget session underway) or to balance the effect of deviations using the next year’s budget law (when these deviations come under the next year’s budget cycle). The government is called upon to be more responsible in setting its spending choices, and has increased leeway with regard to the budget law, as it is no longer constrained by the automatic application of the safety clauses. The signing of the Fiscal Compact (L. 1/2012) and the subsequent execution law (L. 243/2012) that were supposed to introduce the balanced budget rule at the constitutional level as agreed at the supranational level did not actually contain any jurisdictional mechanism to safeguard the effective compliance with the norm. This has permitted the government to continue adding new expenditures and earnings to the budget,10 a practice for which the parliament is usually blamed but which happens because of the government. Overall, the executive planning phase has been strengthened so much through a series of customs that today the parliament is almost divested of its legislative power (Duilio 2013) and the Constitution of its regulatory power (Manzella 2013; Violante 2013). 9  The safety clauses are tools, established by the decreto taglia-spese, which guarantee financial backing in case the cost of a specific measure is not explicitly mentioned in the budget or if it is a provisional cost (Canaparo 2015). The guarantee was pursued in a twofold way: either setting expenditure ceilings to block any additional expenditure not previously foreseen, in the case of new general measures with financial effects; or resorting to safety clauses in the case of measures attributive to individual rights (Giarda P. and Goretti 2003). 10  This was forbidden by art. 81 co. 3, eventually deleted from the law (Giarda P. 2019). Also, the law exacerbated the marginalisation of the parliament, by creating the Parliamentary Budget Office (Ufficio parlamentare di bilancio, UPB)—a new independent agency designated to monitor respect for the  European Semester (ES) requirements  (see Sect. 3.4)— which is currently composed of members of the governing majority and lacks effective powers to intervene.

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Legislative Approval: Praxes and Normative Changes The legislative approval phase involves the presidents of both Chambers, the budget Committees (V Committee) and the parliament, and can be analysed by looking at the requirements of the tutela del contenuto proprio and of the divieto di trattazione di altri affari. The first has been continuously breached since 1994—when, for the first time, the presidencies of the two Chambers were assigned to members of the governing majority (Pivetti and Scognamiglio)11—because of the government’s custom of testing the limits set by the Chambers’ regulations (Bergonzini 2014). Basically, the president of each Chamber has an amendment off-setting power (so-called potere di stralcio): s/he must rule out those measures in the budget bill that lack the necessary financial backing and evaluate the admissibility of amendments, to prevent any new norm unrelated to the budget from being integrated into the document during the legislative discussion. However, the presidents can only employ this power during the first reading of the budget and not later in the process12 and differences in Chambers’ regulations cause relevant divergences in presidents’ behaviours, who in many cases abstain from rigorously applying the norm (Manzella 2003), or yield to faulty judgements driven by political convenience (Vegas 2010). Such practices undermine the amendment off-­ setting power and do not restrain the government’s misconduct. Added together, the vague limitations—or, more precisely, broad interpretations—about the characteristics of amendments that must be discarded, and the lack of respect (since the end of the 1990s) for the time limits for presenting amendments, have transformed the usual custom of ‘stagecoach attack’ (assalto alla diligenza) into a so-called budget in progress.13 Several micro-sectional dispositions or regulatory interventions may end up being introduced even without the required financial backing 11  This broke with the tradition that assigned the presidency to a member of the opposition party, to act as a mediator (interview with Dr Chiara Bergonzini [6/12/2019]). 2018 is the first year since 1994 that the president of the Senate (Maria Elisabetta Alberti Casellati, Go Italy, Forza Italia, FI) was not a member of the governing majority that took office at the beginning of the legislative term, although FI and the winner of the elections (Five Star Movement, M5S) were able to converge on her name before FI moved to opposition because Salvini (the leader of League) decided to join a coalition with the M5S. 12  The rationale is to prevent the president of a Chamber from being in conflict with the president of the other Chamber (Degni and De Ioanna 2004). 13  This is an epithet forged by the MP Boccia in 2001 and later used by Fini in 2006. See Camera, Ass., res. sten. sed. 18/12/2001, p. 58 (Boccia) and Camera, Ass., res. sten. sed. 14/11/2006, p. 58 (Fini).

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(Piccirilli 2008), while the Committee is forced to expand the evaluation phase—so the time available for the parliamentary discussion shrinks—or to repeatedly interrupt it because of the incessant flow of proposals by the government14 that oblige the Committee to reappraise measures already addressed. The consequence of such behaviour is the ‘recommendation’— the practice of selecting the amendments to be discussed, among those reckoned to be more salient by parliamentary groups (Piccirilli 2008)—or the ‘deferment’ of the amendments solicited by opposition parties or on which the debate within the majority is particularly sharp (Bergonzini 2014). The fate of these amendments is the ‘technical rejection’ (so-called bocciatura tecnica); thus deputies/senators can present the same amendments again in the Chambers.15 To avoid the overflow of amendments during the parliamentary discussion and the subsequent impossibility of managing the legislative session, governments have started to massively resort to the maxi-amendment combined with a confidence vote (Piccirilli 2008). In this regard, 2004 marks a real watershed. Before that time, a sort of ‘consensual agreement’ between the government and the opposition allowed the keynote speaker to gather the demands that arose in the Committee while speeding up the budgetary session to secure the approval of the budget by the end of the year. During the XIV legislature, the government started to systematically use the decree-law attached to the budget bill and to modify in extremis the content of the bill. More precisely, in 2003 the government de facto replaced the budget using three maxi-amendments, to bypass the veto of the president of the Chamber of Deputies, Pier Ferdinando Casini, who refused to accept a maxi-amendment substituting the whole budget. Eventually, in 2004 the government presented a single maxi-amendment entirely replacing the budget previously approved by the Committee.16 This ‘quiet 14  To give an example (referring only to the Senate), the number of amendments presented in the V Committee was 3700 in 2000, 1700 in 2001, 5000 in 2002, 1900 in 2003, 1400 in 2004, 2000  in 2005 and 4300  in 2006 (Bergonzini 2014), to arrive at 6482 (at the V Committee of the Chamber) in 2020 (Bergonzini 2021). 15  Otherwise, if an amendment is withdrawn in the Committee it is not possible to present it again in parliament. Thus, on some occasions the rejection is deliberately requested to make it possible to present the amendment in the Chamber (Bergonzini 2014). 16  From a normative point of view, the maxi-amendment leaps over the other legislative proposals, thus, once the government submits it to the parliament, it is immediately discussed and voted on. The practice of combining the maxi-amendment with the confidence vote, which is already the norm, guarantees that the maxi-amendment is always approved.

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revolution’ (Perna 2008) culminated in 2008, with the beginning of the ‘emergency management of the economic policy’ (Duilio 2013) and the shift of the centre of gravity of budgetary decision-making from the parliament to the government, and most of all to the MoF (Bergonzini 2014: 96). For the first time, DL. 112/2008, exploiting the legislative power of the government to introduce financial backing assets, brought in several regulatory measures, thereby bypassing the prohibition on deliberation of other measures of a financial nature (divieto di trattazione di altri affari). Moreover, exploiting the apparent necessity of promptly facing the consequences of the economic crisis,17 the government uses decrees to enforce the budgetary policy, setting a dangerous precedent. Most importantly, with a government decree, the whole budget regulation planned with L. 468/1978 was de facto modified without touching the norm. The custom set in for about two decades and especially after 2008, but was shaken up first in 2016 then, even more dangerously, in 2018. In the first case, Prime Minister Renzi resigned during the approval phase of the budget and impeded the continuation of the examination of the budget bill: while agreeing to delay his departure until after the budget was passed, Renzi forcefully sped up the process and coerced the Senate to vote for a document it had never discussed (and the Committee had not finished analysing), stopping the parliamentary debate. This constituted a piercing precedent which paved the way for the 2018 rupture. In that year, the parliamentary procedure regulated by art. 72 of the Constitution was completely suppressed (Cavino 2019), with the government skipping the examination of the budget bill for the sake of time, voting for a different text from the one issued by the Committee.18 They 17  In practice, as underlined by some scholars of parliamentary and public law (among others, Ciolli [2013]; Bergonzini [2014]), the measures lacked the requirements of ‘necessity and urgency’ envisaged by art. 77 of the Constitution. This is corroborated by the absence of consequences for the GDP that year and the subsequent use of the economic crisis as a leitmotif of budgetary norms, particularly during the period 2008–2012 (Camera dei Deputati 2012). 18  This violated the lodo Pera-Morando (Bergonzini 2014: 82–86; Gambale and Perrotta 2004), a parliamentary procedure established during the XIV legislature which forbade the government from adding a confidence vote on a text that the Committee had not previously scrutinised. Although governments have repeatedly tried to elude this norm, the president of the V Committee had always intervened and forced the government to withdraw the modifications and to vote on the text approved by the Committee. This allowed the lodo to survive for about fifteen years until 2016, when the government placed the confidence vote on the text passed by the Council of Ministers because of the government crisis and the government’s resignation which did not allow an orderly exam.

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used the confidence vote each time on a document that none of the parliamentary bodies had previously examined and which differed substantially from those analysed and voted on earlier (Bergonzini 2019). In 2019 the parliament was de facto transformed into an monocameral regime (Bergonzini 2020; Di Cosimo 2019), as during the second reading in the Chamber of Deputies the government added the confidence vote on the same document approved by the Senate, preventing the usual third reading and obstructing the amending process (Cavalieri 2020)—a new practice continued during the following years (Cutrone 2021). The fil rouge connecting all of these practices is the pillar about the certezza dei tempi di decisione. Paradoxically, respect for the timing—considered the actual cause for the lack of respect of the general regulations ruling the budgetary process (Goretti and Rizzuto 2011)—is always exploited by the government to justify the violation of the other two pillars. The strict necessity of avoiding the provisional budget has significantly contributed to legitimising the use of the maxi-amendment, so that when the examination of the finance bill is almost over, the government proposes an amendment, usually covered by the confidence vote, which replaces the bill entirely, suppressing parliamentary discussion (De Giorgi and Verzichelli 2008). Ultimately, the use of the maxi-amendment is twofold: on the one hand, it helps the government keep the majority compact—sometimes extremely difficult when the budget is concerned; on the other hand, accounting for procedural aspects that prescribe who imposes what on whom, the government appears to be able to ‘decisively and randomly control the parliamentary procedures that regulate the budgetary session, having the power to decide over the whole budgetary process, although not necessarily entitled by the legislation’.19 As underscored by several scholars (among others Bergonzini 2014; Piccirilli 2008), the executive has increasingly taken possession of more room to manoeuvre vis-à-vis the parliament, thanks to the vagueness of some regulations, finally depicting a situation where higher centralisation has actually happened de facto more than de jure.

19  Interview with Dr  Chiara Bergonzini,  academic researcher of Constitutional law and expert in parliamentary law of the budgetary process (6/12/2019, own translation).

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3.4   Italy and the Development of the European Economic Governance During a meeting of the general management of the Democratic Party on 27 February 2014, Federica Mogherini, who was at that time the newly appointed Minister of External Affairs of the Renzi government (2014–2016) and later High Representative of the European Union for Foreign Affairs and Security Policy, affirmed that ‘Italy has two capitals: Rome and Brussels’. This statement uncovers the double-sided nature of the relationship between Italy and the European Union. On the one hand and with hindsight, the declaration seems a little ironic, considering the harsh confrontation between the European Commission and Italy under the Renzi government (Brunazzo and Della Sala 2016; Bressanelli and Chelotti 2022) and the fact that support in Italy for the European Union and its policies had already incredibly declined compared to a few decades before (Bellucci and Serricchio 2016). On the other hand, it is particularly meaningful if read considering the development of the EEG and its influence on national budgetary policy in recent years. Presently, it is almost impossible to distinctly separate domestic budgetary policy from the decisions made at the supranational level. Since its original design, the Italian budgetary process has undergone a long process of reform that went in different directions, under pressure from different actors. At the supranational level, it aimed to increase the responsibility of national actors towards economic and fiscal commitments agreed to at the European level and to ease the dialogue between the two levels in order to set up an integrated budgetary process. At the national level, the reforming process pursued higher efficiency and centralisation, with the purpose of reducing the time necessary to come to an agreement, and making it easier for the government to implement its spending preferences without succumbing to the tendency of the parliament to raise public expenditure. Still domestically, the budgetary decision-making process has been shaped by practices—not established de jure—that decisively moulded the behaviour of political actors and the final budgetary outcome. Both (i.e. regulations and practices) and their interlacement with the European level (see Table 3.1) deserve a meticulous investigation in order to fully understand the balance of power during the budgetary process in a strong parliamentary democracy integrated into multilevel governance and its effect on the budget outcome.

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Putting Down Roots of the EEG: National and Supranational Reforms Before the Crisis After the slack regulation of the 1970s and the 1980s, the establishment of the so-called Second Republic (1992–2012) and the age of political alternation marked the beginning of a long-lasting process of reconstruction of the budgetary process. At the beginning of the 1990s, the development of the EU regulations and powers started to fill the domestic space left open by the ineffective Italian legislation. The pace and characteristics of the 1990s and 2000s reforms are deeply linked, if not truly shaped,20 by the evolution of the EEG and the harmonisation of its Member States’ budget policies to common standards (Radaelli 2002). Starting distinctly from the signing of the Maastricht Treaty (1992), which launched a set of stringent rules for public finance convergence (deficit-to-GDP ratio below 3 per cent and a debt-to-GDP ratio below 60 per cent), the budget policy of European members is limited by the so-­ called European ‘external constraint’ (Dyson and Featherstone 1996; Moschella 2017). The newly created multilevel governance forced the Italian government to engage in some unavoidable retrenchment measures to meet the Maastricht criteria, the general trend of national accounts improved, with a drastic reduction of the deficit and a remarkable series of positive primary balances over years. Despite the initial bold start, the Economic and Monetary Union remained quite silent during the 1990s and early 2000s, in terms of reforms and improvement. A notable exception is the adoption, in 1997, of the Stability and Growth Pact (SGP). At the same time, national governments started to feel the need to acquire more power vis-à-vis the parliament during the budgetary session. A set of reforms during the Prodi I government (1996–1998) represented the first real, although unsuccessful, attempt to overcome the incremental budgeting (spesa storica incrementale): a mechanism which entails that the new budget should be anchored to that of the previous year and that financial resources should be adapted mostly to address potential variations of inflation. This long-lasting mechanism has in the long run deprived the government in charge of its legitimate opportunity to question decisions on the allocation of expenditures taken by previous administrations, without verifying the effectiveness of those choices (Bergonzini 2017). Yet, despite the repeal of this procedure thanks to L. 94/1997, the 20  On some occasions, governments exploited the European ‘external constraint’ as an excuse to issue ambitious or sharp economic and fiscal measures, with the possibility of blaming the EMU for the unpopular choices (Rotte and Zimmermann 1998; SahlinAndersson 2000).

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mechanism has remained in place for many years after. Overall, the budget and financial package (manovra finanziaria) was composed of the budget bill containing the budget targets set by the government, the corrective measures attached and other governmental proposals (such as bills or even urgent decrees) that could have a ‘priority lane’ in parliament after the vote on the budget law. The internalisation of the SGP fostered the issuing of a largely praised law (L. 208/1999) that modified, once again, the whole budgetary session to overcome its complexity (Lupo 1999), by clarifying the function of the DPEF and postponing its submission to 30 June of each year (instead of 15 May). Approaching the financial bill, the DPEF became more consistent with the financial and macroeconomic forecasts presented in the bill, and in that year (1999) contained four-year spending targets (instead of the usual three-year targets) to be consistent with the new planning requirements required by the European Union. The DPEF matured into a venue where the main actors’ stances (European Union, government, social partners and local authorities) met, with the parliament acting as a politically influential watchdog, not banished merely to ratify ex post the decisions taken in other venues (Lupo 1999). A single superminister was created in 2001 by the Bassanini regulations, which centralised the authorities of the Minister of Treasury, Minister of Budget and Minister of Finance, and was accorded the power to unilaterally cut expenditures during the fiscal year in case of an unexpected and dramatic rise of the public deficit (Perez R. 2003). In the early 2000s, European parameters underwent serious challenges and showed their extremely rigid nature, even for such ‘solid’ countries as France and Germany, which in 2003 ran up excessive deficits compared to the limit set by the SGP, followed in 2004 and 2005 by a group of ten Member States, demonstrating that the pact was unenforceable (Saurugger and Terpan 2016). This made necessary a reform of the SGP (2005), which introduced the Excessive Deficit Procedure (EDP) which applies to those Member States breaching (or at risk of doing so) the SGP parameters,21 whose issuing approximates the end of a relatively calm 21  The SGP is a set of rules which pursue sound public finances of Member States and coordinate their fiscal policies. The EDP, opened by the European Commission, includes a waiver if the excessive deficit is only temporary and exceptional and if the deficit is close to the ceiling of 3 per cent (European Commission website: https://ec.europa.eu/info/business-economyeuro/economic-and-fiscal-policy-coordination/eu-economic-governance-monitoring-prevention-correction/stability-and-growth-pact/corrective-arm-excessive-deficit-procedure_en).

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period, that allowed the EEG to put down roots into national grounds before the outbreak of the Great Recession and of the Eurozone crisis. The Supranationally Imposed National Response to the Eurozone Crisis Although the country became one the most usual suspects to become a candidate for sanctions according to the SGP rules because of its huge public debt, nothing changed until the Berlusconi IV government. A vast parliamentary majority supporting the government entirely replaced the structure of the law of public finance and accounting in place since 1978 and redesigned the whole budgetary process with a twofold purpose (L. 196/2009). On the one hand, it pursued harmonisation with the new framework set up to implement fiscal federalism. On the other hand, it aimed to reinforce the centralisation of the budgetary process by modifying the phase of governmental preparation and making the timeline more compact. A more adequate and prearranged timing was planned both for the Public Finance Decision (Decisione di Finanza Pubblica, DPF)22 and the stability bill, which substituted the DPEF and the financial bill, respectively, to be closer to the budget bill. The economic crisis marked a real turning point and set off one of the fastest periods of integration and reinforcement of the EU (Jones E. et al. 2016): from that moment forth, it has severely tightened its grip on national public accounts through a sequence of incremental reforms. The whole process is currently streamlined under the broader framework of the European Semester (ES),23 in place since January 2010. The instrument is designed to level out economic policy differences among Member States, which have to take into account the European guidelines when preparing national fiscal plans and to follow a pre-determined timeline (Table 3.1) that replaced a number of fragmented national processes (Dunlop and Radaelli 2016; Falkner 2016). Combining ‘hard’ and ‘soft’ measures (Hallerberg et al. 2012), the ES enhances the European economic policy-­ making stringency through more interactions between national institutions and the Commission, aspiring to a sharper economic coordination and budgetary discipline (Dehousse 2016). In fact, it accords a special role 22  The DPF was compiled only in 2010, because it was substituted right away by L. 39/2011 which introduced the Document of Economy and Finance (DEF). 23  The ES (Regulation 1175/2011, Recital 9) finds its legal basis in the Treaty on the Functioning of the European Union (TFEU), art. 121 and 148, stating that the European Union Member States need to coordinate their economic and employment policies to assure the functioning of the monetary union.

SGP

1999

New structure and timing of the budget

L. 208

2002

Safety clauses; MoE can cut or change the allocation of funds

DL. 194

EU Semester

2010

2009

Redesign of the process; DPF and stability bill replace the DPEF and the financial bill

MoE can change authorizations decided by the parliament; de facto change of the budget regulation by government decree

2008

L. 196

DL. 112

Phase II: stability and growth

2004

First maxiamendment replacing the whole budget

Budget for 2005

Phase II: stability

Note: Normative changes are in regular font while praxes are in italics

2001

Superminister of the Economy and Finance

L. 50/1999

Supranational Level: EEG and internalisation

Phase I: convergence

1997

1992

1997

New structure of the budget; Attempt to overcome the spesa storica incrementale (failed)

L. 94

Maastrich t Treaty

1978 1988

DPEF; Official deadline for the budget cycle

Formal budget session

L. 468/78 L. 362/88

Phase I: convergence

Domestic Level: Normative changes and praxes

Six-Pack

2011

2011

DEF replaces the DPF; complianc e with ES

L. 39

Fiscal Compact

2012

2012

ZBB (failed); BBR (noncompliance)

L. 243

Phase III: crisis

2014

2019

First time for two readings instead of three

Budget for 2020

Phase III: constitutionalized austerity

Two-Pack

2018

Confidence vote on different documents never analysed by other bodies

Stability and budget bill unified; ZBB implemented; MoE can autonomously cut spending authorizations; Senate approves a document never discussed 2016

Budget for 2019

L. 163

Phase IV: constitutionalized austerity

Phase IV: solidarity

PEPP and NGEU

2020

Activation of the general escape clause of the SGP

NPRR;

Budget for 2021

Phase V: conditional expansion

Table 3.1  Most relevant changes of the Italian budgetary process and policy cycles of the Italian budget (1978–2021)

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to the Commission instead of national parliaments (Majone 2014), further raised in breadth and depth, both on the side of economic policy surveillance and on the side of national policies coordination (Bauer and Becker 2014: 216).24 However, the SGP measures already proved their ineffectiveness in the run-up to the economic crisis (Bauer and Becker 2014) and the necessity of ensuring the effective functioning of the ES was propelled into a new series of regulations: the Six-Pack (2011), the Treaty on Stability, Coordination and Governance (TSCG, also referred to as the Fiscal Compact, 2012) and the Two-Pack (2014). Chronologically, these reforms introduced: (a) the Macroeconomic Imbalance Procedure (MIP) to monitor fiscal imbalances and national expenditure; (b) the Alert Mechanism Report (AMR) to observe those countries subject to the MIP; (c) a reinforcement of the EDP25; (d) additional power to the Commission to issue early warnings to Member States if public expenditure grows faster than the GDP (Six-Pack); (e) extension of the Reversed Qualified Majority Voting (RQMV) to all stages of the EDP; (f) balanced budget and debt brake rules26 (Fiscal Compact) and (g) improvements of the ex ante coordination and monitoring by the Commission of those countries with financial imbalances, which verifies whether the draft plans comply with the SGP and CSRs (Two-Pack). 24  Moving from previous works (e.g. Scharpf [2001]; Börzel [2005]), the authors found a ‘medium expansion’ of the breadth of the economic policy surveillance put in place by the Commission and a ‘little expansion’ of the coordination of national policies. On the side of depth, they estimated a ‘strong expansion’ of the Commission’s economic policy surveillance and a ‘medium expansion’ of the coordination of national policies. 25  The Six-Pack specified that a country can be walked into the deficit procedure when the requirement of debt-to-GDP ratio under 60 per cent is not respected, even though the deficit is below 3 per cent. However, as specified by the European Commission (2011), the assessment considers ‘relevant factors and the impact of the economic cycle’ when deciding whether to carry out the EDP. 26  The balanced budget rule establishes that a country’s budget situation should be at least balanced with the structural deficit not exceeding a country-specific Medium-Term budgetary Objective (MTO), that is, 0.5 per cent of GDP per year for those states with a debt-toGDP ratio over 60 per cent or 1 per cent of GDP for states whose debt level respects the 60 per cent limit. After the Fiscal Compact entered into force on 1 January 2013, almost all European countries introduced in their internal legislations a balanced budget rule. The debt brake rule demands from those countries with excessive debt a reduction at an average rate of at least one-twentieth per year (5 per cent) of the excessive percentage points. Countries are expected to provide their report on both deficit and debt, with the latter being an ex ante issuance plan that Member States have to submit to both the Commission and the Council.

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Clearly, although the Commission cannot infringe on national sovereignty, all of these measures have greatly expanded its role over recent years, and many countries have been caught in the grips of its monitoring and forced to adopt severe austerity measures because of the high indebtedness, threatened by the prospect of seeing an infringement procedure opened by the EU. In this regard, the Italian case is self-evident. During the Eurozone crisis, the fact that there was no assurance about the impossibility of Italy leaving the Eurozone and the supranational preference for a purely ‘national’ response to the crisis (Guardiancich et al. 2022) forced Italy to extreme choices to reassure the financial markets.27 Berlusconi resigned in favour of the technocratic austerity-driven Monti government, which immediately put on the country’s agenda the structural reforms requested by the ‘letter from the two Presidents’ (Trichet and Draghi, outgoing and incoming presidents of the European Central Bank) and by the Troika (ECB, European Commission and the International Monetary Fund) more generally. The decreto Salva-Italia (DL. 201/2011) allowed the country to save about €34.9 billion between 2012 and 2014 (Cavalieri et  al. 2018) while the decreto Cresci-Italia (DL. 1/2012) carried out the required liberalisation. After the Monti takeover the matter immediately became ‘how to instead of whether to satisfy the fiscal rules’ (Csehi and Schulz 2022), resorting to what has been called ‘conditionality by other means’ (Sacchi 2015). Basically, the threat by the Troika and the Commission in particular to open the EDP against the country, which both civil society and political actors perceived as a blackmail (Csehi and Schulz 2022), did not allow for any sort of negotiation between Italy and the EU institutions and was the main driving force behind the policy of austerity of those years.

27  In this regard, a wide part of the literature is reasonably convinced that European constraint is used as a scapegoat for the Italian economic policy problems, whereas it is a membership constraint more than a legal one. In fact, the real obligation comes from the financial markets and the level of the spread. It seems that ‘the declining financial sovereignty is the consequence of markets’ reduced confidence rather than the effect of European constraints’ (Pisaneschi 2019: 167, own translation). Indeed, it has been argued that the stringency of European rigour on national budgets depends on the control of Member States over their level of deficit and debt. Sanctions increase as long as a country deviates from supranational parameters. According to this line of thinking, the European external constraint simply highlights the Italian debt exposure which affects the sovereign credit rating (interview with Dr Chiara Bergonzini, 6/12/2019).

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From a Crisis to Another: Stability and Solidarity Despite the evident shortcomings—acknowledged later by supranational organisations as well (IMF 2012; OECD 2014)—of the neoliberal rules of fiscal governance adopted between 2009 and 2012 to face the Eurocrisis (Guter-Sandu and Murau 2022), the EU doubled down on those measures, reinforcing both the surveillance and the enforceability of the rules-­ based coordination regime (Laffan and Schlosser 2016). However, the measures impelled by the rhetoric of ‘(national) responsibility’ (Ioannidis 2020) inflicted serious damage, much larger than expected, especially to debtor states, as they caused lower growth and rising inequality in the long run (Perez and Matsaganis 2018). In an attempt to stem the damage, by encouraging structural reforms and increasing investments, a new and revised guidance about the implementation of the SGP was issued by the Commission in 2015 following guidance from the European Council, which granted more flexibility when evaluating Member States’ compliance with the Pact’s rules (Council of the European Union 2015). While fiercely confronting the European Commission during the budgetary session of his government (Brunazzo and Della Sala 2016; see also Chap. 7), Renzi issued the last relevant reform of the budget session (L. 163/2016), pursuing a more transparent and compact budgetary process while bringing control of the budget formulation back to the Prime Minister instead of the Ministry of Economy (henceforth, MoE) (Di Mascio et al. 2017). The process of centralisation of the budgetary session that started in the 1970s was completed with the 2016 reform, which gives the Prime Minister the power to set the budgetary policy targets and funds for each ministry on the basis of the proposal of the Minister of Economy. Once again, a new timing for the presentation of programmatic documents was established following the European deadlines, in order to guarantee a detailed analysis by the parliament on conclusive budget figures. One of the main goals, finally achieved, was to overcome the mechanism of incremental budgeting by implementing the Zero-Based Budget (ZBB, bilancio a base zero) which better allows the government to decide the allocation of expenditures across budget categories.28 The main innovation, however, concerned the structure of the budget law, which put 28  The discussion and a first attempt to introduce the ZBB started in 2012, after the issue of L. 243/2012 (art. 21, co. 1). The uniqueness of the ZBB is that it is built each time starting from zero, meaning without looking at previous appropriations (Ragioneria Generale dello Stato 2014: 4).

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together the former stability bill and the budget bill in a unique and reinforced document that contains budget items for the current legislation and potential corrections to expenditure, along with financial balances and accounts foreseen for the next three years (Bergonzini 2017). After a few years characterised by different attitudes of national governments towards the European Union and a propensity to accept or not stringent fiscal targets (see Chaps. 6 and 7) that have made the annual mood of fiscal targeting very changeable—in fact, it seems that the effective implementation of conditionality depends on the perception of its legitimacy at the domestic level (Epstein 2006)—the process of reform and enforcement slowed down until the COVID-19 pandemic. This appears to have brought about an actual change in the European approach towards national budgetary policy. The crisis substantially destructured the responsibility rhetoric and substituted it with the principle of solidarity. Taking unprecedented action, the European Union approved, among other measures (Fabbrini 2022), a massive Pandemic Emergency Purchase Programme (PEPP) amounting to €750 billion, further raised by €600 billion in July 2020, and by €500 billion in December 2020, for a total of €1850 billion (European Central Bank 2020). With the same importance, the Commission has activated the general escape clause of the SGP, which allows a temporary deviation from the deficit and debt parameters of Member States in order to face the huge fiscal response demanded by the effects of the pandemic. That happened again in February 2022, with the outbreak of the war in Ukraine. Additionally, the recovery plan called Next Generation EU (NGEU), approved in 2020 that will be active from 2021 to 2027, for the first time allowed the issuing of common debt to finance investments of Member States. The receipt of funds is contingent upon the approval by the European Commission of a package of reforms included in the National Plan of Recovery and Resilience (NPRR) of each Member State. In such a brand-new context, the ES also has been adapted on a temporary basis to allow for the implementation of the Recovery and Resilience Facility (RRF) and applied to complement the latter. The new environment was a political choice driven especially by the Franco-German axis, during the initial negotiations for a common response to the pandemic. Different from the Eurozone crisis, when the sharp conflict between northern and southern European countries resolved in favour of the fiscal discipline advocated by the former group (Doray-­ Demers and Foucault 2017; Jones E. and Matthijs 2017; Laffan 2014), the contraposition between the two groups of countries was won by the

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southern countries backed by the Franco-Germans against the ‘frugal four’ (Austria, Denmark, Netherlands, Sweden) (Ladi and Tsarouhas 2020). On the side of economic policy, the pandemic crisis seems to have triggered an actual paradigm change in the design of the EMU and of the EEG, as it pushes forward considerably the integration of fiscal affairs29 (Fabbrini 2022) and possibly increases the political legitimacy of the European Union, which faded during and after the Eurozone crisis (Ladi and Tsarouhas 2020) (Table 3.2). 3.5   Discussion Overall, what is the actual scope and purpose of budgetary policy? Does it have an actual political value, where the government states its policy goals for the upcoming fiscal years, or has it increasingly acquired a purely technical valence to merely control public accounts and implement supranational fiscal and economic requirements and previous spending commitments? Why has it been long considered an essential element of democratic representation, yet it seems to have become just a battleground where political actors often forget to fulfil their duty of long-term care of citizens? To what extent and how does the institutional setting influence budgetary policy outcomes and potential changes? These questions are at the core of this case study, which is worth investigating not only because it is substantively important to read in light of an underlying theory (reviewed in Chap. 2) but also because it is useful to test hypotheses in order to (re)define a theory. This book pursues both goals, explained in detail in the next chapter along with the methodology for conducting the study. In this chapter, we provided an overview of the Italian budgetary process and its transformations over time, along with the connection with European regulations. Recognising them and how the ‘rules of the game’ transformed during these stages sheds light on how the budgetary policy is carried out and helps us to understand whether the budget can be conceived as a policy tool in the government’s hands in order to steer the electoral mandate, or simply a technical document outlining economic and fiscal commitments in pursuit of tidy national accounts. As reviewed, 29  Thanks to the NGEU, the Commission can borrow money on the financial markets, transfer these resources to Member States as grants and repay these funds by increasing taxes (Fabbrini 2022: 197).

Italy

EU Council European Parliament European Council Member States

European Commission

Publication of the AGS/ASGS

November

December

February

31. Deadline for submitting bills related to the financial plan

1. Beginning of the financial year (L. 196/2009, art. 20)

April

May Assessment of national fiscal and structural plans and adoption of CSRs and EARs

15. MEF presents to the 1. ISTAT broadcasts 31. MEF submits the parliament indicators Rendiconto Generale the GDP and net debt 10. MEF presents and and targets on wealth, dello Stato of the of public approves the DEF, based on the current administrations of the (considering the SCP and NRP) previous year to the budget (L. 196/2009, previous year CdC art. 10, co. 10-ter) 31. Decision on 3-year 10. Advise the Conferenza permanente per il spending targets for coordinamento della finanza each ministry pubblica 30. Submission of the SCP and the NRP to the EU; RGS receives accounts from the ministries to compile the Rendiconto

Submission of the SCPs and NRPs

European Dialogue Endorsement of ASGS

March

Drafting of SCPs and NRPs, taking into account the ASGS

Debate and orientation on ASGS

January

European Semester and Italian Budgetary Process Timeline

Table 3.2  The Italian budgetary process: timeline of domestic and supranational deadlines of the budgetary process

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July

30. MEF submits a supplementary and corrective document of the DEF to the parliament

30. MEF submits to the parliament the Rendiconto of the previous year

15. Document on 3year spending targets for each ministry submitted to the parliament

Endorsement of CSRs and EARs

Finalisation and adoption of CSRs and EARs

June

August

20. Executive presents the NaDEF to the parliament (integrates comments by the Ecofin)

September

20. Executive submits the budget bill and a supplementary document with 3-year effects on public finance to the parliament

15. Executive submits the DBP to the Commission and Eurogroup

October

30. Assessment of the Commission on the DBP

November

31. End of the financial year: deadline for approval of the budget

December

Note: AGS, Annual Growth Survey; ASGS, Annual Sustainable Growth Survey; CdC, Court of Auditors; CSR, Country-Specific Recommendation; DBP, Draft Budgetary Plan; DEF, Document of Economy and Finance; EAR, Euro-Area Recommendation; ISTAT, National Institute of Statistics; MEF, Minister of Economy and Finance; NaDEF update notes on DEF; NRP, National Reform Programme; RGS, Ragioneria Generale dello Stato; SCP, Stability and Convergence Programme

Source: Author’s own elaboration; developed, including the Italian budgetary process timeline, from Dunlop and Radaelli (2016) and Cotta and Verzichelli (2020) and European Commission website: https://ec.europa.eu/info/business-­economy-­euro/economic-­and-­fiscal-­policy-­coordination/eu-­economic-­ governance-­monitoring-­prevention-­correction/european-­semester_en

Italy

European Parliament European Council Member States

EU Council

European Commission

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the domestic pathway of the Italian budgetary process is two-pronged. On the one hand, it marches on through normative changes. In this respect, all of the efforts made in the last few years have determined the conditions for an appropriate institutional design of the budgetary process. The achieved purpose of strengthening the role of pivotal actors (Di Mascio et  al. 2013; Stolfi 2010) led to some optimistic expectations about the reduction of a long-standing problem of fiscal irresponsibility (Damonte 2013). There is evidence of a clear-cut path towards the long-term transformation of the Italian budgetary process that aimed to ease and speed up an overblown budgetary cycle, improving its effectiveness and providing both the formulation phase and the parliamentary session with adequate timing and clear rules about the institutional role of each actor. On the other hand, transformations in praxes have caused a dangerous loss of power of the parliament, exposing the country to the risk of nullifying all the reforming efforts of the past years. At the supranational level, the developed intergovernmental dimension of European integration has both reinforced the integration of countries, and also made national governments even more important and liable within the European context (Fabbrini S. 2015; Lupo 2019; Puetter 2014). In light all of the events that have occurred in the past few years and despite all the possible mistakes made by European leaders, the reaction to the COVID-19 pandemic has proven that the EU is nevertheless not a static actor; rather it is capable of adapting to crisis and keeping the project alive and viable (Jones E. 2020; Wolff and Ladi 2020). Overall, it is interesting to notice that the process of reform of the Italian budgetary policy and its link with the supranational level resembles an incremental pattern of development, despite the many critiques of Italy about its apparent reluctance and inability to adapt both to new challenges and to the European regulations. Does it have implications for the management of budgetary policy? This chapter provides the reader the tools for answering the question later in the book.

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Sacchi, Stefano. 2015. Conditionality by Other Means: EU Involvement in Italy’s Structural Reforms in the Sovereign Debt Crisis. Comparative European Politics 13 (1): 77–92. Sahlin-Andersson, Kerstin. 2000. National, International and Transnational Constructions of New Public Management. Score Rapportserie 2000:4. SCORE (Stockholm Center for Organizational Research). Saurugger, Sabine, and Fabien Terpan. 2016. Do Crises Lead to Policy Change? The Multiple Streams Framework and the European Union’s Economic Governance Instruments. Policy Sciences 49 (1): 35–53. Scharpf, Fritz W. 2001. Notes Toward a Theory of Multilevel Governing in Europe. Scandinavian Political Studies 24 (1): 1–26. Simoni, Marco. 2020. Institutional Roots of Economic Decline: Lessons from Italy. Italian Political Science Review/Rivista Italiana Di Scienza Politica 50 (3): 382–397. Stolfi, Francesco. 2010. Testing Structuralist and Interpretative Explanations of Policy Change: The Case of Italy’s Budget Reform. Governance 23 (1): 109–132. Vegas, Giuseppe. 2010. Il nuovo bilancio pubblico. Bologna: Il Mulino. Verzichelli, Luca. 1999. La politica di bilancio. Bologna: Il Mulino. Violante, Luciano. 2013. Note sulla crisi del procedimento legislativo e su alcune sue conseguenze. In L.  Duilio (ed),  Politica della legislazione, oltre la crisi. Bologna: Il Mulino. Wolff, Sarah, and Stella Ladi. 2020. European Union Responses to the Covid-19 Pandemic: Adaptability in Times of Permanent Emergency. Journal of European Integration 42 (8): 1025–1040. Zanardi, Alberto. 2013. La finanza pubblica italiana. Rapporto 2013. Bologna: Il Mulino.

CHAPTER 4

Approaching an Explanation of Longitudinal Change in the Italian Budget

4.1   Introduction Until now, we have posed the basis for understanding the analysis that we will be conducting in the next sections of the book. Chapter 2, after reviewing the main development of the theories on budgetary changes, provided the theoretical framework the research rests on. We know that the budget is extremely sticky and difficult to change over time because of the barriers erected by firm institutional frictions. Seldom is the hyper-­ incremental pattern of tiny adjustments shaken, usually by an external shock or because of the accumulation of pressure, and that may lead to a punctuation that establishes a new pattern. Chapter 3 framed the Italian case within the European context and described the main transformations at the domestic and supranational levels in the management of the budgetary process. In multilevel governance, the European Union has appeared on the forefront as one of the main actors shaping national policies, in particular since the 1992 Maastricht Treaty and with the reinforcement of the European Economic Governance, triggered precisely by the Eurozone crisis with the purpose of coordinating and monitoring national budgets and fiscal conditions, especially of those Member States more severely hit by the recession. The austerity measures inflicted on these countries fed the external constraint rhetoric, which has blamed the EU for weighing on citizens’ wealth and suppressing their political will, paving the way for the de-­institutionalisation of national party systems (Chiaramonte and Emanuele 2017). © The Author(s), under exclusive license to Springer Nature Switzerland AG 2023 A. Cavalieri, Italian Budgeting Policy, https://doi.org/10.1007/978-3-031-15447-8_4

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New anti-establishment and populist parties have been born, vitalised by mounting dissatisfaction and protests over the elites in office and their management of the crisis. Yet, while domestically populist parties have already been appointed in government—Italy is the birthplace of the first fully fledged populist government of Western Europe, that is Conte I (2018–2019) (D’Alimonte 2019; Garzia 2019)—with the promise of loosening ties with the supranational actor or even abandoning the Union (Bressanelli and Chelotti 2022), the country remained under surveillance by the European Commission until the pandemic crisis for its high levels of debt and deficit, as it has unsuccessfully tried for many years to adapt to the economic requirements agreed to in 1992. This chapter presents all of these factors in detail, in the form of variables that will serve the analyses in Chaps. 5–7. Before that, a description on how the study is conducted in the next sections allows the reader to navigate through the book.

4.2   A Comprehensive Analysis of Budgetary Policy: A Threefold Policy Perspective Despite the crucial role of the budget policy and the many interesting venues for research provided by the Italian case, political science scholars have not paid too much attention to it and scholars of other disciplines have focused mostly on macroeconomic aspects (debt, deficit, expenditure) or, comparatively, on procedural rules and laws. As for political science, we can count on dated studies which concentrated on institutional variables and investigated the budgetary process through detailed qualitative analysis, neglecting policy change dynamics. Since the well-known work of Verzichelli (1999), who filled a relevant gap in political science and public policy scholarship about the Italian budgetary process and politics, the subject has been left mainly in the hands of economists or addressed by focusing on very specific and limited aspects, such as budgetary cuts (see for instance Cavalieri et al. 2018). In fact, there are about twenty years of intense domestic and supranational transformations which have not yet been fully studied, although these surely affect the pattern and magnitude of budget changes. A comprehensive explanation of Italian budget policy must also include study of the decision-making process. The entire budget cycle, arranged according to specific and strict rules setting timing, general targets and tasks, exhibits the relative power of actors and how they use their power

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trying to achieve their goals. However, the budget is usually left behind even by studies about legislative decision-making (see for instance Pedrazzani and Zucchini 2013) because of its peculiar characteristics that expose it to comparison with other types of ordinal legislation at the risk of misinterpretation. Domestic procedures are constantly and profoundly studied by scholars and experts of constitutional law, but the focus therein is purely on procedural rules and tends to neglect the impact of changing procedures on budgetary policy outcomes. Therefore, this book does not limit itself to the study of budget changes, but it also aims to explain the politics of budget policy, resting on the conceptual framework of the PET but also introducing a new level of analysis that considers decision-making dynamics. Finally, even scholars of public policy have refrained until now from applying the punctuated equilibrium model to the Italian budgetary policy (again, with a couple of exceptions; Russo and Verzichelli 2016; Cavalieri et al. 2018). We are going to reconcile all of these prospects—from the analysis of long-term economic dynamics to the deep investigation of budgetary procedures, while applying the PET to uncover and understand patterns of budget changes—and align them in an overarching study that pursues both an interpretative and hypotheses-testing objective. Between-Years Transformations: The Size of Changes The diachronic analysis focuses on the characteristics of budgetary changes. How big or small are budgetary changes in Italy? How often do punctuations occur? Is there a pattern and which factors can potentially explain that? The investigation of the policy is twofold. On the one hand, it focuses on the magnitude of yearly budget changes to figure out which are the most relevant variables that cause budget punctuations. Because the magnitude of changes spans from very tiny changes or no change at all to huge increases or dramatic cuts, it is likely that the effect of the predictors does not remain constant but diverges according to the magnitude of budget adjustments. A quantile regression model and a logistic regression (the second uses a dichotomous dependent variable for the occurrence of punctuated changes) help us to address this issue. On the other hand, the analysis considers the direction taken by the changes, differentiating by large increases, large cuts and minor positive and negative adjustments. This additional analysis is theory-driven, as insights from previous works indicate that tiny and extreme changes (the first are those in the central peak and the second are those falling into the

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Table 4.1  Hypotheses about the magnitude of yearly budget changes (Chap. 5) Hypothesis

Variable

Effect

Fragmentation Polarisation Centralisation External constraint Crisis

Effective number of parties in parliament Ideological distance within the government Index of budgetary regime centralisation Index of European constraint Dichotomous variable for Eurozone crisis (2009–2014) and the COVID-19 pandemic (2020–2021) Degree of conflict within the government about the budget Dichotomous variable for technocratic government

− − + − +

Dichotomous variables for partial and complete ideological reshuffle between two consecutive governments Annual GDP growth

+

Coalitional conflict Technocratic government Ideological alternation Economic situation

− +

+

tails of a frequency distribution of budget changes, see Fig. 2.1 in Chap. 2) do not behave in the same way. At the same time, we also know from previous research that the left tail (i.e. negative changes, meaning severe budget cuts) is less subject to punctuations compared to the right tail (i.e. positive changes, that is a huge expenditure boost) (Breunig and Jones 2011; Jones et al. 2003). As before, the quantile regression model is useful to consider the non-linear impact of the selected factors on dramatic reductions, minor adjustments and substantial expansions. This twofold analysis allows us to test the PET on the Italian case and to understand the force of institutional frictions and external shocks on the frequency, magnitude and direction of annual budgetary changes. As for the institutional frictions, the statistical analysis does consider the role and characteristics of different actors, that is the parliament and the government but also the European Union, already very integrated into the national budgetary process. In fact, all these participants in the budgetary decision-making process are appointed with key roles which grant them ample leverage to shape the accounts. Studying the interaction among these actors also helps us to understand the degree to which the budget is a technical or a political document, because of the higher control exerted by some at expense of the others. Table 4.1 summarises the hypotheses that will be tested in Chap. 5, where the analysis of the frequency and magnitude of yearly transformations is conducted.

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From One Year to the Next One: The Government’s Intentions Annual budgetary changes are extremely relevant to understanding the role of institutional frictions and external inputs on the policy outcome. However, when considering institutional factors, in particular the government and the parliament, it is not clear from the analysis of yearly modifications whether the budget law is the result of the government’s will or of parliamentary debate. Each year the government starts from the budget law of the previous year and outlines its spending intentions in a new budget bill. That bill is later reviewed by European institutions and is then subject to the parliamentary process, at the end of which the final budget law is approved (see Table 3.1 in Chap. 3 for details about the multilevel budgetary process). In this context, the government is invested with a great deal of power at the very beginning of the financial year, but its spending preferences may clash with the European external constraints or/and with the frictions posed by the parliament. The ability of the government to exploit the budget as a tool to carry out its electoral mandate is far from being sure, especially in such a strong parliamentary democracy as Italy. The institutional design, which grants different spaces of manoeuvre to the actors involved in the process of drawing up and passing the budget, does have a strong effect. Therefore, before controlling for the balance of power between institutional actors, it is crucial to inspect whether the government actually wanted to change the previous year’s budget. Did the government try to reallocate expenditures across budget functions or was it satisfied with the budget law approved a year before? The analysis of the budget intentions of the government, carried out in Chap. 6, is possible thanks to a twin dataset that I developed that puts together information about spending for each budget category in both the budget bill and the budget law. This allows me to check the difference between the budget law of a specific year and the budget bill of the following one. The analysis considers in particular the reallocation of expenditure across budget categories, in order to understand the position of the government with respect to the status quo. While this type of information is usually extremely difficult to grasp when studying budget policy, data about the budget bill represent a very useful and insightful added value to the comprehension of Italian budget policy. Table 4.2 presents the most important factors that will be considered in Chap. 6 to uncover if, and to what extent

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Table 4.2  Hypotheses about the degree of expenditure reallocation between the budget law(t−1) and the budget bill(t) (Chap. 6) Hypothesis

Variable

Effect

Polarisation Centralisation Crisis

Ideological distance within the government Index of budgetary regime centralisation Dichotomous variable for Eurozone crisis (2009–2014) and the COVID-19 pandemic (2020–2021) Dichotomous variable for newly appointed governments

− + +

Number of days the government holds office Degree of conflict within the government about the budget Dichotomous variable for technocratic government

+ −

Newly appointed government Days in office Coalitional conflict Technocratic government Ideological alternation Economic situation

−

+

Dichotomous variables for partial and complete ideological + reshuffle between two consecutive governments Annual GDP growth +

the government tries to adjust the previous year’s budget and to reallocate funds across budget categories to pursue its policy preferences. Within-Year Transformations: The Balance of Power In the Italian symmetrical bicameralism, substantial amendments are easily attained because of the presence of several veto points, high party system fragmentation and the alleged strong parliamentary nature of the budgetary session. In this respect, the legislature could have ample leverage on the budget, being able to consistently modify the allocation of expenditures and the total amount of public spending, as compared to government forecasts and initial intentions (Fig. 4.1). Yet, as reviewed in Chap. 3, the budgetary cycle in Italy has undergone several modifications throughout the last decades, which have given advantage to the executive steering capability to the detriment of the parliamentary prerogatives. Interestingly, while normative changes have gradually reinforced the role of the government, decreasing the parliamentary nature of the budgetary session and increasing Italian fiscal responsibility, changes that happened de facto (i.e. through the settling down of practices) seem to have made the parliament completely powerless. That would be a novelty with respect to our empirical knowledge about the role of the parliament during the

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Billion euro

650

450

250 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017 2019 2021

Year Budget law

Budget bill

Fig. 4.1  Trends in public expenditure in Italy (1993–2022). Note: total budget expenditure does not include the interest payment on debt because they are not actual policy intentions (see Fig. 2.1 in Chap. 2 for details on that). The graph is drawn from data described in Chap. 5. From here on, I use the official name of the budget, that means that the 1993 expenditure was allocated by the budget approved in 1992

budgetary session. Does this have any effect on the budget policy and is it visible in the budgetary changes? From a bird’s-eye view, it seems that the parliament—and possibly the EU—has leverage over the government’s bill which caused the variation in the total amount of expenditure between the bill itself and the budget law. A fluctuating trend shows a long-term increasing path, which initially stabilises near the 2000s and remains rather flat for a bit more than a decade, until a slight upswing from 2013 onwards. From 2000, the Italian budget has varied between €445 and €500 billion with the maximum spending in 2021, when it surpasses €600 billion. The bill and law fluctuated simultaneously for almost the entire period, except for a noticeable difference in 2007, when the budget bill was substantially revised and raised by €42 billion after the parliamentary session (Fig. 4.1). For the whole period, the budget comes out after the parliamentary session increased by around €5 billion each year, on average, with the

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highest peak in 2007 and the lowest in 1993 (a reduction of €30 billion). The two lines overlap starting with the budget for 2017—to reach complete immobility in 2021 when the budget bill was not touched at all by the parliament—probably as a consequence of the 2016 reform that modified the structure of the budget law (see Chap. 3), and new praxes that progressively reduced the time for parliamentary discussion and the room to manoeuvre of the parliament (as we will see more in detail in Chap. 7). This first visual assessment already suggests the attractiveness of elucidating the balance of power between the executive and the legislative branches in forging the budget law, considering also the potential effect of the European external constraint. The analysis mirrors that in Chap. 6 and focuses on expenditure reallocation across budget categories to check whether the parliament redistributes funds towards specific budget categories (Table 4.3). Again, the budget bill comes in handy, making it possible to measure the variation between the document drawn up by the cabinet and that issued by the parliament after a few months of debate, testing some new hypotheses. Some budgetary decision-making processes are also qualitatively reviewed in order to shed light on a few relevant dynamics and to clarify the role of the actors and powers. All in all, the study conducted in Chap. 7 aims to see whether the role of frictions identified in the previous chapters hold statistically even when analysing the balance of power during the budgetary session. In this way, we take a step forward in the literature without going in-depth into a qualitative study of each annual manovra, as scholars of Italian budget tend to do and by applying the PET framework to measure also within-year changes. Table 4.3  Hypotheses about the degree of expenditure reallocation between the budget bill(t) and the budget law(t) (Chap. 7) Hypothesis

Variable

Effect

Fragmentation Centralisation External constraint Crisis

Effective number of parties in parliament Index of budgetary regime centralisation Index of European constraint Dichotomous variable for Eurozone crisis (2009–2014) and the COVID-19 pandemic (2020–2021) Dichotomous variable for year prior to elections Degree of conflict within the government about the budget Dichotomous variable for technocratic government

+ − + +

Electoral cycle Coalitional conflict Technocratic government

+ − −

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4.3  Tools to Study the Italian Budget Policy: Methodological Innovations Each of the different types of analysis outlined in Sect. 4.2 enlightens on specific budgetary dynamics, which, read together, provide an overarching explanation of changes in the budgetary policy, process and Italian politics. The added value of the study also concerns certain methodological improvements: it presents a new dataset1 about public expenditures in Italy over the last three decades which reports on the actual government spending preferences, devoid of mandatory spending commitments and other obligations. It is made up of twin datasets on the budget bill and the budget law. A comparison of the two, in different moments of time, allows us to uncover the government’s position with respect to the status quo and its attempt to deviate from that, and also to judge the evolution of the decisions related to the budget during the whole financial year, filling a gap in the literature about the Italian budgetary changes and also about the budgetary decision-making process. This is extremely relevant as, for the first time, it allows for scrutiny of the legislative decision-making process during the budgetary session with tools provided by political science scholarship. Specifically, we have a unique occasion to look in depth into the mechanism of changes and frictions developed by the PET and apply it to study not only annual changes but also modifications during the decision-making process. In addition, I develop a few innovative measures that are used in the next chapters as independent variables, which permit a real analysis of the role of the actors involved in the process. Two brand-new measures have been developed for this purpose. One exclusively concerns the domestic level and pertains to the budgetary regime centralisation, meaning the strength of the government in steering the budgetary policy vis-à-vis the parliament.2 Combining changes of regulations and praxes, it evaluates how much the government has acquired control over the budgetary decision-making process, focusing on the executive planning and legislative approval phases. The other is about the European external constraint and the force acquired by the supranational level within domestic budgetary decisions. The added value of the proposed measure is to go beyond the 1  Part of the dataset was used in Cavalieri (2020a), and will also be presented in Chaps. 6 and 7. 2  The measure was first proposed by Cavalieri (2020b) and further developed here.

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simple presence/absence of supranational rules and their type, but to consider a number of different aspects that also follow the main steps of the implementation of the EEG and of the power of the Commission. In fact, the wider and more intrusive monitoring of Member States’ budgets spreads out especially through the Commission, whose power over economic policy surveillance and the coordination of national policies have risen in both breadth and depth (Bauer and Becker 2014: 216). In this regard, the supranational level may already be the only place where actors are able to induce a paradigmatic change in the budgetary policy of Member States, which on their side cannot dramatically change their perspective on the budget policy if the policy idea behind is not embraced by the highest bureaucratic level, namely the EU. Methodologically, both of these aspects have long been neglected because of several pitfalls in their operationalisation. The book also contributes to this crucial aspect. While the increased density of the budgetary process is self-evident on paper, it is also necessary to have proper measurements of the strength of each actor to really assess the impact of institutional frictions on the magnitude of budgetary changes. Ultimately, the reinforced relationships between the national government and the EU might have partially counterbalanced another long-lasting domestic reform process, namely the attempt to reinforce the power of the executive. At the same time, the domestic balance of power on spending decisions and the higher rationalisation of the budgetary process that have developed over time do not mean a reduced complexity of the process. The two measures chart the reforming process of both the national and supranational sphere, clearly linked, and help to figure out whether the continual reforming process of the budget cycle and the influence of European economic governance really do play a part in the degree and frequency of budgetary changes. Overall, which factors both domestically and internationally drive the course of Italian budget policy? Which are the prevailing forces that determine the magnitude and occurrence of budgetary changes?

4.4  Centripetal, Centrifugal, Countervailing Forces? Ideology has for a very long time been considered one of the most important variables in the debate in public policy studies about ‘who gets what’ (Alt and Lowry 1994; Brown 1995; Dye 1984). Until a few years ago,

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studies pointed out the existence of a strong tie between partisan ideology and spending preferences, both on the side of the overall magnitude of public spending and on domain-specific spending choices (among others, Blais et al. 1993; Hibbs 1977, 1992; Wilensky 1974). Nevertheless, these proofs have partially lost credibility because of a growing number of contrasting results (König and Troeger 2005; Ross 1997; Wagschal 1998). In addition to the fact that ideological budgeting is sufficiently restrained by past legacies (Rose and Davies 1994), multi-annual spending commitments and mandatory spending programmes (North 1990; Pierson 1993), other factors may have a more substantial impact on spending choices and transformations. Furthermore, parties’ lower capability of intercepting and understanding people’s attitudes and, most of all, the reduced possibility of political parties to implement their constituency’s policy preferences once in office has closed the gap between left- and right-wing parties in a few policy areas (Garrett and Lange 1991; Potrafke 2009). Admittedly, the reality is that most of the time individual parties do not have full control either over government decisions or over public finances, therefore partisan preferences can hardly be translated into public policies. On top of that, we should note that responsiveness is no longer the governments’ main concern and needs to be counterbalanced with the request for responsibility coming from the multilevel governance, which on some occasions has pushed governments to prefer responsibility over responsiveness (Mair 2011). For all of these reasons, the ideological position of the government is not used as a predictor of the magnitude of budgetary changes. This choice conforms to the idea that institutional variables and crises have a stronger effect than partisan preferences on determining the budget policy. Considering institutional frictions, as explained by the PET, I give attention to the party system’s fragmentation and government polarisation, but also to the characteristics of the budgetary process and of the European constraints. Other control variables that pertain to some particular features of the government and of the characteristics of the Italian party system are considered—such as the technocratic versus the political nature of the government, the degree of coalitional conflicts and the ideological alternation between consecutive governments—to offer a clear picture to the reader. These elements are melded and assimilated within an external environment of ‘permanent austerity’ (Pierson 1998, 2002), taken into account as contextual factors and reacting to two external shocks, herein recognised in the outbreak of the economic crisis and of the

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COVID-19 pandemic crisis, to verify whether these have triggered budget punctuations, as predicted by the PET. Parliamentary Fragmentation To begin, in order to assess the impact of the party system’s fragmentation on the magnitude of budget changes, I rely on scholarship on fractionalisation which measures the number of parties in the party system (Klingemann 2005; Lijphart 1999; Powell 1982; Rae 1971; Taagepera and Shugart 1989). As already done in several studies on voting behaviour, electoral turnout and political conflicts (Blais and Dobrzynska 1998; Kim et al. 2010; Norris 2004), I employ one of the most commonly used measures, that is, the effective number of parties (Laakso and Taagepera 1979) in parliament at the seats level, derived from the Comparative Political Dataset3 (Armingeon et  al. 2021) and based on the following formula. ENP =

1 , with the 1 − Rae index

m

Rae index = 1 − ∑ ( si ) i =1

2



where: • s is the proportion of seats for party i; • m is the number of parties. Specifically, this measure identifies the number of ‘effective’ legislative parties, meaning parties that are ‘in effect’ (not parties that are ‘efficacious’) (Gallagher 2018). Actually, it does not merely count the number of parties in a political system. Clearly, the same score may result from different configurations of parties, or a growth/reduction in the number of parties may leave the level of fragmentation unaltered (Taagepera and Shugart 1989). Theoretically, as the survival in office of the government depends on the majorities in parliament, the legislative majority tends to support the government’s bills, in particular very important ones (Laver and Shepsle 3  Because the dataset provides information only until 2019, the value for the last years in the analysis is based on my own calculation using the same formula.

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1996). However, it is also true that high fragmentation of the party system increased the likelihood of undisciplined parliaments (Farneti 1985; Sartori 1976). As an example, the Italian First Republic (1948–1991) was marked by highly fragmented party systems4 which allowed parties in parliament to introduce several individual spending proposals, feeding a long tradition of transformative amendments to the budget (Verzichelli 1999) that made it extremely difficult for the government to implement its initial proposals. In a context of extreme fragmentation, where reaching a collective decision is considerably difficult because parliamentary majorities are composed of ideologically distant parties, MPs logroll particularistic policies and use decision rules for allocating policy benefits to their own constituencies (Forestiere and Pelizzo 2008). This pattern is in line with the tenets of the already-mentioned (see Chap. 2) ‘law of 1/n’ (Weingast et al. 1981) but we need to consider the many changes that happened in the past decades in Italy to understand whether the law still holds true. In fact, the degree of parliamentary fragmentation considerably decreased after hitting a peak in 1994 and 1995 and reached its minimum with the XVI legislature (2008–2013), while it rose again in the past two legislative terms (2013–2018 and 2018–2022) (Table 4.5). Government Ideological Polarisation While the parliament’s fragmentation is fundamental to understanding what could happen during the discussion and approval phase of the budget, the very first bill is drawn up and abundantly discussed by the cabinet. The number of veto players therein is of utmost relevance and cannot be reduced to the mere number of parties that belong to the governing coalition, which in fact does not provide deep knowledge about the characteristics of the party system, being considered a surrogate for a more complex measure, namely polarisation (Dalton 2008). This aspect dates back to the seminal works of Downs (1957) and Sartori (1976)5 but still misses a

 As noted by Forestiere and Pelizzo (2008), Italy had the second highest average number of effective parties in parliament in the 1990s among Western European democracies, second only to Belgium. 5  The first introduced the concept of spatial modelling of the party system and the second of centrifugal and centripetal forces affecting the party system’s composition. 4

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shared opinion on its operationalisation6 despite its wide use (among others, Best and Dow 2015; Knutsen 1998; Pelizzo and Babones 2007; Rehm and Reilly 2010). At a general level, it accounts not only for the number of actors but also for the degree of ideological distance between the actors themselves. Table  4.4 presents a typology of Italian governments based on the two dimensions taken into account, namely type of government and the ideological distance of the parties in government. The first aspect is assessed considering the government’s composition and the breadth of parliamentary consensus. Ranging from the ‘most majoritarian’ (where the power concentration is in the government’s hands) to the ‘least majoritarian’ (where the power is shared among several actors) (Russo 2015) and placing them along a continuum, Italian governments are classified as multi-party minority governments (coalitions which nevertheless do not have the majority in parliament), minimal winning coalitions (multi-party coalitions where all the actors are needed to guarantee the parliamentary majority) and surplus coalitions (where there is at least one excess party which is not necessary for granting the government the parliamentary majority).7 On the side of ideological polarisation, following Russo and Verzichelli (2016), the measure calculates the ideological distance between the two most extreme parties of the government, as the distance affects the size of the government winset. As is evident, Italy is characterised by multi-party coalitions with different connotations according to the number of parties and their essential participation in the government’s formation. At a general level, looking at the ideological distance, it is immediately visible that left-wing cabinets are more ideologically polarised than their counterparts. This is due to the more heterogeneous composition of these cabinets which spreads between extreme left parties to centrist ones (until 2008) or, more recently, encompasses a broad spectrum that also reached centre-right parties, as is the case of the oversized coalitions of the XVII legislative term (2013–2018), whose governments, unsurprisingly, are among those with the highest 6  Schmitt (2016) provides an in-depth study of the different measures of polarisation with the purpose of finding the most reliable one among 210 different ways of calculating it. In spite of his huge effort to untangle this knot, he argued that results of quantitative analyses are substantially determined by the decision of which measure to adopt, and the difference between indicators is so relevant that it is impossible to ignore the problem. Results of his study highlight the fact that there is no superior measure. 7  Single-party governments are excluded, as Italy never experienced them in the period under analysis.

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Table 4.4  Typology for the classification of governments (1992–2021)a Type of government Multi-party minority government Ideological polarisation

Low

Medium Prodi I (1996–1998) (DS—RI— FDV—PPP)

High

Minimal winning coalition

Surplus coalition

Berlusconi I (1994–1996) (FI—LN—AN—CCD/ UDC) Berlusconi IV (2008–2011) (FI—LN—MPA) Prodi II (2006–2008) (ULIVO—FDV—IDV— PRC—PDCI—R— UDEUR) Conte I (2018–2019) (M5S—League—MAIE) Conte II (2019–2021) (M5S—PD—LeU—IV— MAIE) Amato II (2000–2001) (DS—RI—FDV— DEM—PDCI—PPP— UDEUR) Renzi (2014–2016) (PD—NCD—R—SC— UC) Gentiloni (2016–2018) (PD—NCD—UC)

Berlusconi II (2001–2005) (FI—LN—AN— CCD/CDU)

Berlusconi III (2005–2006) (FI—LN—AN— UDC—PRI— NPSI) Letta (2013–2014) (PD—NCD— R—SC—UC) D’Alema (1998–2000) (DS—RI—FDV— PDCI—PPP— UDEUR)

Source: Author’s own elaboration, developed from Cotta and Marangoni (2015); ParlGov (Döring and Manow 2021). The list with the full name of parties is provided in Abbreviations: Names of Italian Political Parties a Technocratic governments are excluded from the table (however, they will be considered later on) since they are classified as a different type of government whose viability depends on the external support of a broad spectrum of political parties, but who do not formally belong to the governing coalition. Thresholds for the degree of ideological polarisation correspond to the 1st quartile and the 3rd quartile of a distribution that puts together the ideology score of all cabinets considered in the table. Therefore, the low degree of polarisation identifies those governments with ideological distance lower than 2.18; governments with medium polarisation have a score falling between 2.18 and 4.78; high ideological distance includes those governments with a score higher than 4.78. For the sake of knowledge, technocratic governments have been supported by the following parties: (1) Ciampi: PSI, DC, PLI, PSDI; (2) Dini: PDS, PRC, AD, FDV, PPI; (3) Monti: PDL, PD, UDC, FLI, APL, CN, MPA, PRI; (4) Draghi: M5S, League, FI, PD, IV, LeU, +Europa, NcI, CD.  The support obtained by these governments gives the degree of ideological polarisation presented in Table 4.5

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degree of polarisation. Right-wing cabinets, in contrast, have always been ideologically cohesive regardless of the number of coalition members. The composition of the executive changed precisely after 1994, which is a watershed in this sense. After that time, the presence of minimal winning coalitions grew increasingly (Russo 2015). The standard structure with a big central party (Christian Democratic Party, Democrazia Cristiana, DC) around which two or more smaller parties rotated has shifted towards a model of alternation between competitive centre-right and centre-left coalitions. During this phase of ‘fragmented bipolarism’ (Chiaramonte 2010), the alternation mostly occurred with the starting of a new legislature (Cotta and Verzichelli 2016; Marangoni and Verzichelli 2019). However, in contrast to what one may expect from the innovative traits of the party system established during the Second Republic (1992–2012), party system fragmentation rose instead of decreasing, notably as a consequence of the new electoral system with a strong majoritarian component which encouraged parties to build pre-electoral coalitions (Cotta and Marangoni 2015). This model remained in place until the collapse of the Berlusconi IV government in 2011 and the appointment of a technocratic government headed by Monti. After the turning point reached with the 2013 elections which saw the official appearance on the Italian political landscape of the M5S and set up a tripolar competition after a substantial shift of voters’ preferences (Chiaramonte and Emanuele 2014), the 2018 elections marked another political earthquake at both the international and the domestic level. On the first side, the government that took shape after the polls (Conte I) was the first cabinet in Western Europe made up of only populist parties (M5S and League) (D’Alimonte 2019). On the other side, the electoral results marked a sharp break from the Italian political life of the past decade. After seven years of loud requests from voters for an actual change, the end of 2011 has been identified as the kick-off of the transition towards the Third Republic (2013–ongoing) (Chiaramonte and De Sio 2019). The XVIII legislative term was all but calm and the COVID-19 pandemic marked a return to a technocratic government in order to face that crisis and those that emerged soon after the appointment of the Draghi government: the war in Ukraine and the subsequent energy crisis, in addition to the necessity of allocating the huge amount of funds of the NPRR received by European Union. Despite the fact that the technocratic Draghi

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government was called in to plug a tough political situation and was supported by the whole parliamentary spectrum (except for one party [FdI]), it fell because of tensions created by its own majority, after the refusal of the M5S to take part in a confidence vote on a government’s decree. This surprise, which caused the early termination of the XVIII legislature (2018–2022), brought about another novelty in Italian Republican history, namely the elections immediately after the summer (September 2022) which saw the victory of the right-wing coalition headed by the radical right party headed by Giorgia Meloni (FDI). Budgetary Process Centralisation The outcome of the budgetary policy is affected by the decision-making process not only with regard to the actors involved but also in relation to the rules of procedures. Broadly speaking, it is possible to distinguish among three fundamental steps of the annual budgetary decision-making. The bureaucratic phase starts with the decision of the MoE about the parameters upon which revenue and expenditure forecasts for each administrative office are formulated, and then with the preparation of each ministry’s provisional budget under the coordination of the Ragioneria Generale dello Stato (RGS).8 Then, during the governmental phase, the executive reviews forecasts and in April submits the DEF with the macroeconomic fiscal targets to the parliament. This timeline follows the scheduling of the ES and allows the government to define the contents of the SCP and NRPs, while the parliament assesses their subjects (see Table 3.1 in Chap. 3). After the integration of the European institutions’ comments into the NaDEF, the parliamentary session begins and must finish by the end of the year to avoid a provisional budget.9 The last phase of parliamentary debate entails the approval of the budget bill by the parliament within the financial year, which has forced the government on many occasions to speed up this last stage. The parliamentary debate and the approval phase ultimately depend 8  This body, established in 1869 and currently part of the MEF, monitors planning and management of public accounts and resources, starting from the very beginning of the process. 9  Before the end of January, the government is allowed to present additional draft laws linked to the budget law, which should have already been presented in the DEF and NaDEF.

94 

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on the balance of power between the executive and the majority that supports it (Verzichelli and Russo 2020). With respect to these phases, as described in detail in Chap. 3, the Italian budgetary process has been marked by a long reform process that aimed to strengthen the government’s prerogatives and control over budgetary decisions. In addition, several changes happen de facto and praxes established new models of behaviour of the actors participating in the process. To assess these transformations, I use a measure of budgetary process centralisation, which takes the example of previous comparative works (Hallerberg et al. 2007; Lienert 2005; Wehner 2006)10 that assess the level of fragmentation of the budgetary process in a multi-dimensional space. Departing from the index developed by Russo and Verzichelli (2016), I improve the measure by integrating those modifications due to changing praxes (see Cavalieri 2020b) and expand the index to cover the whole period under analysis. The index is composed of two dimensions: executive planning and legislative approval, both calculated on a 0–15 scale, then summed together to obtain the index of budgetary process centralisation (Table 4.5).11 The first dimension considers nine different aspects which together allow us to evaluate the strength and powers of the executive during the planning phase, as a consequence of both reforms and praxes. The second dimension takes into account eleven aspects such as the role of Committees and the use of the amendment power, most of which became established and transformed by practices rather than normative changes. Both dimensions display an ascendant pattern, with a slight retreat for a few years before rising again. As a consequence, the whole index almost always increases, driven by the growing importance of the executive planning phase which, through a series of new customs, has divested the parliament of its legislative power (Duilio 2013) and even more inconceivably the Constitution of its regulatory power (Manzella 2013; Violante 2013) (as also described in Chap. 3).

10  Whereas the index used by Hallerberg et al. (2007) is made up of four dimensions, here the focus is on just two of them, namely executive planning and legislative approval, as done by Russo and Verzichelli (2016). This choice is driven by the primary importance of the phase of parliamentary discussion that I want to examine. Therefore, dimensions addressing the phase of legislative implementation and the influence of multi-annual fiscal targets are not considered. 11  For a detailed explanation of dimensions of the index, see Appendix, Tables A.2–A.5.

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European External Constraint The decision-making process is affected not only by domestic characteristics but also by the supranational context and the reinforcement of the European Union policy, especially after the outbreak of the economic crisis. That moment marked a turning point both in the process of reform of the Italian budgetary policy and in the implementation of the EEG, almost unvaried between 1997 and 2008. From that moment on, the EU severely tightened its grip on Member States’ public accounts, mainly during the phase of discussion and approval. The interlacing of the domestic and supranational levels created by the multilevel governance has given rhythm to the overall management of Italian budgetary policy, structured into the different phases presented above. While we have already illustrated at length the process of development and reinforcement of the EEG (see Chap. 3), the EU influence over national budgetary policy is far from being properly measured and remains rather blurred in some respects. In this regard, a notable part of the literature has argued that the European Union’s influence on national policies is simple rhetoric, erroneously and sometimes purposefully called ‘external’, with the aim of externalising the blame of some unpopular and tough budgetary choices (Bezes and Le Lidec 2015; Clift and Ryner 2014; Pinelli 2016). In fact, Member States have already adopted at the domestic level the supranational norms and internalised external obligations,12 creating a context wherein traits of voluntary choices are blended with and sometimes hidden behind the rhetoric of an exogenous imposition that limits national sovereignty. To evaluate this aspect, I develop an index for the European external constraint, composed of six dimensions, that puts together various information about the characteristics of requirements, and the type and timing of monitoring by European institutions (Table 4.5; see also Appendix A, Tables A.6 and A.7). The additional value of this index (calculated on a 0–15 scale) is to go beyond simpler measures on just the presence/absence of the rules and the type, considering a number of dimensions that make 12  In fact, because most of the decisions of the Council of the European Union and the European Council are taken unanimously, the alleged separation may be perceived as mere rhetoric (Lupo 2019). This is even more evident after the economic crisis, when the European Council has enlarged its position by convening almost once a month in order to discuss and coordinate those national policies to put in place in order to face the consequences of the crisis (Wessels 2016: 4).

XIII

1997

1998

1999

2000

2001

1997

1998

1999

2000

1996

1995

1996

1995

1994

1994

1993

XII

1993

1992

XI

Government

25/04/00 Amato II

22/12/99 D’Alema II

21/10/98 D’Alema I

17/05/96 Prodi I

17/05/96 Prodi I

17/01/95 Dini

10/05/94 Berlusconi I

28/04/93 Ciampi

28/06/92 Amato I

Budget Date of fora appoint.

Year

Legisl. term

Reviglio (B), Goria (F), Barucci (T) Spaventa (B), Visco/Gallo (F), Barucci (T) Pagliarini (B), Tremonti (F), Dini (T) Masena/ Fantozzi/ Arcelli (B), Fantozzi (F), Dini (T) Ciampi (B/T), Visco (F) Ciampi (B/T), Visco (F) Ciampi (B/T)/ Amato (B/T), Visco (F) Amato (B/T), Visco (F) Visco (B/T), Del Turco (F)

Minister of Economy and Financeb

Surplus coalition Minimal winning coalition

Multi-party minority Multi-party minority Surplus coalition

Minimal winning coalition Technocratic

Technocratic

Technocratic

Type of government

6.07

6.07

6.07

6.07

6.07

7.88

7.88

5.74

5.74

5.16

5.16

5.16

3.83

3.83

4.12

2.18

2.68

2.68

Parliam. Ideolog. fragmen polarisa tation tionc

14

14

12

12

13

12

11

11

12

Budget process centralis.

8

8

6

6

6

6

6

6

6

European external constraint

0

0

0

0

0

0

0

0

0

Crisis

Table 4.5  Domestic and external factors potentially affecting Italian budgetary policy (1992–2021)

6.67

5.88

18.18

15.28

31.37

30.77

13.46

28.57

16.42

Coalitional conflicts on budget

No shift

Partial

Partial

Partial

Partial

Partial

Partial

No shift

Ideological shift

1.86

3.75

1.59

1.71

1.83

1.28

2.74

2.07

−0.84

GDP growth

XVI

2009

2010

2011

2012 2013

2008

2009

2010

2011 2012

2008

2006

2005

2007

2005

2004

2007

2004

2003

2006

2003

2002

XV

2002

2001

XIV

Government

16/11/11 Monti 16/11/11 Monti

08/05/08 Berlusconi IV

08/05/08 Berlusconi IV

08/05/08 Berlusconi IV

17/05/06 Prodi II

11/06/01 Berlusconi II 11/06/01 Berlusconi II 11/06/01 Berlusconi II 11/06/01 Berlusconi II 23/04/05 Berlusconi III 17/05/06 Prodi II

Budget Date of fora appoint.

Year

Legisl. term

Monti Grilli

Tremonti

Tremonti

Tremonti

Padoa Schioppa

Padoa Schioppa

Tremonti

Siniscalco

Tremonti

Tremonti

Tremonti

Minister of Economy and Financeb Surplus coalition Surplus coalition Surplus coalition Surplus coalition Surplus coalition Minimal winning coalition Minimal winning coalition Minimal winning coalition Minimal winning coalition Minimal winning coalition Technocratic Technocratic

Type of government

3.08 3.08

3.08

3.08

3.08

5.09

5.09

5.45

5.45

5.45

5.45

5.45

4.52 4.52

0.65

0.65

0.65

4.4

4.4

3.12

2.18

2.18

2.18

2.18

Parliam. Ideolog. fragmen polarisa tation tionc

19 21

18

18

19

18

18

18

18

17

15

15

Budget process centralis.

10 11

9

8

8

8

8

8

8

8

8

8

European external constraint

1 1

1

1

1

0

0

0

0

0

0

0

Crisis

50.00 10.42

4.76

6.58

10.26

5.17

30.00

11.11

16.67

14.06

11.76

0.00

Coalitional conflicts on budget

Partial

Total

Total

Partial

Total

−2.9 −1.78

0.64

1.7

−5.38

−1.01

1.48

1.9

0.88

1.5

0.14

0.25

GDP growth

(continued)

Ideological shift

2020

2021

2022

2020

2021

2018

2017

2019

2017

2016

2019

2016

2015

2018

2015

2014

XVIII

2014

2013

XVII

Government

05/09/19 Draghi

05/09/19 Conte II

05/09/19 Conte II

01/06/18 Conte I

12/12/16 Gentiloni

22/02/14 Renzi

22/02/14 Renzi

22/02/14 Renzi

27/04/13 Letta

Budget Date of fora appoint.

Year

Legisl. term

Table 4.5 (continued)

Franco

Gualtieri

Gualtieri

Tria

Padoan

Padoan

Padoan

Padoan

Saccomanni

Minister of Economy and Financeb Surplus coalition Minimal winning coalition Minimal winning coalition Minimal winning coalition Minimal winning coalition Minimal winning coalition Minimal winning coalition Minimal winning coalition Technocratic

Type of government

6.99

4.38

4.38

4.38

3.52

3.52

3.52

3.52

3.52

1

3.33

3.33

3.02

4.78

4.78

4.78

4.78

4.65

Parliam. Ideolog. fragmen polarisa tation tionc

26

26

26

25

25

25

21

21

21

Budget process centralis.

12

12

11

12

11

12

12

12

11

European external constraint

1

1

0

0

0

0

0

0

1

Crisis

14.02

3.19

53.06

16.67

8.16

6.25

2.33

3.23

11.76

Coalitional conflicts on budget

Partial

Partial

Total

No shift

No shift

Partial

Ideological shift

6.64

−9.03

0.5

1.21

1.59

1.08

0.87

0.05

GDP growth

Note: The column ‘Budget for’ identifies the budget according to its official name, that is the budget for 1993 was introduced and approved in 1992. Later in the book, the official name of the budget will be used

c

While the ideological polarisation of technocratic governments (Amato I, Ciampi, Dini, Monti, Draghi) was not used in Table 4.1 to place the governments into the typology, I present that here. It is measured, as for other governments, as the ideological distance of the most extreme parties in the coalition taking into account only those parties that gave external support to the cabinet, excluding those that abstained on the confidence vote. The Ciampi government was supported by PSI, DC and PSDI. During the confidence vote, the government got 309 positive votes, 60 opposed and 182 abstentions in the Chamber of Deputies (162 positive, 36 opposite and 50 abstentions in the Senate). The Dini government was supported by PDS, PRC, AD, FDV, PPI, with a share of consensus similar to that for Ciampi, with 302 positive votes, 39 opposite and 270 abstentions (191 positive, 17 opposite and 2 abstentions in the Senate). Differently, the Monti government was supported by a very high number of parties—PDL, PD, UDC, APL, CN, MPA, PRI—and indeed has a higher level of polarisation. On the confidence vote, none of the political parties abstained and the cabinet obtained the highest number of positive votes ever in the history of the Italian republican, with 556 positive votes and 61 in opposition at the Chamber of Deputies (281 positive and 25 in opposition at the Senate) (Lupo 2015). Finally, Draghi managed to almost reach the favour got by Monti. His government obtained 535 positive votes, 56 in opposition and 5 abstentions at the Chamber of Deputies (262 positive, 40 in opposition and 2 abstentions at the Senate) (Lupo 2021). At the appointment, a few representatives of parties supporting the majority (as M5S and League) voted in opposition; however, the government was sustained for almost the entire period in government by the whole parliamentary arena but FdI

b

From 1992 to 2000, the column indicates the names of the Ministers of Budget (B), Finance (F) and Treasury (T), which were unified into a single ministry in 2001 (see Chap. 3)

a

100 

A. CAVALIERI

clear the main steps of the implementation of European economic governance and the blend of the domestic and supranational level of governance. The index displays the gradual reinforcement and coordination of the EEG related to national budgetary policy, with interesting variations and decreases in a very few years. More precisely, in 2017 and 2019 the ‘unusual events clause’ was activated for Italy allowing the country to derogate from the SGP parameters for those years; in 2020, instead, the ‘general escape clause’ was activated for all Member States, but the index increased because the EU strengthened its ex ante surveillance with the NGEU, which requires approval by the Commission of any national reforms programme. Crisis In light of the PET tenets, we know that the course of public policies is driven by a complex system where partisan priorities face the constraint of the institutional setting before being translated into policy outcomes and sometimes clash against the emergence of new issues and upcoming signals from the external environment (Jones and Baumgartner 2005). In the words of Jones et  al. (2006), the agenda-setting process is a meld between ‘the “order” of frictions and the “chaos” of urgency’. That means that exogenous shocks affect the domestic agenda and decisions about public budgeting as well. The buildup of external pressure in case of (any type of) crisis allows a country to overcome the resistance placed by domestic institutional frictions and causes a major breakthrough in the usual hyper-incremental pattern. In recent years, two devastating events shook national policies, especially public budgeting: namely the Eurozone crisis and the COVID-19 pandemic. These serve as pertinent examples of the influence of external events on domestic institutional and political dynamics which created the need for substantial corrections of the budget, thereby disrupting a long-­ standing pattern of small modifications. The occurrence of such crises is traced with a dichotomous variable that takes on value 1 (crisis) from 2008 to 2013 and in 2020 and 2021 (Table 4.5). Besides these fundamental forces that are likely to be the most forceful in shaping the outcome of the budgetary policy and the degree of budget changes, a few notable factors of the party system deserve to be considered as control variables.

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Coalitional Conflicts on the Budget Besides the characteristics of the party system and of parliament’s composition, the policy performance of a government is affected by the degree of coalitional conflicts, which may challenge the endurance of the government itself (Nousiainen 1993; Damgaard 2008). Previous studies (see Marangoni and Vercesi 2015; Cotta and Marangoni 2015; Marangoni 2013) adopt a rather broad definition of ‘conflict’ which describes it as ‘the moment of contrast between two or more actors (single or collective) belonging to the governing coalition, or as a clear stance of one or more governing elements against others’ (Cotta and Marangoni 2015: 151). These episodes have been singled out through an in-depth text analysis of different sources,13 to create a dataset collecting all of the conflicts that happened during the 29 years analysed. From the dataset, it is possible to derive a measure of coalitional conflicts of the government but also about conflicts on single policy issues, by looking at the cause of the dispute. Indeed, I focused on coalitional disputes about the manovra and derived a measure which is the proportion of disagreements about it on the total number of conflicts that occurred during the fiscal year (Table 4.5; see also Appendix A, Table A.8).14 Overall, there is an interesting picture of high variability. Some years are markedly more contentious than others and the same is true for the budget. Although cabinets of the Second Republic (1992–2012) are notably less contentious than those of the First Republic (1948–1991), the enlarged power of the Prime Minister and a sort of ‘direct investiture’ he has from the coalition do not totally prevent coalitional conflicts, which instead have been one of the major obstacles to a more incisive role of the 13  A first part of the dataset (1996–2012) is provided by the Center for the Study of Political Change (CIRCaP), whose scholars collected data using two of the most important Italian newspapers (Corriere della Sera and La Repubblica), then the dataset was expanded to cover the whole time period under analysis. Data from 1992 to 1995 and from 2013 to 2021 have been collected using the online archive of La Repubblica and a timeline reported by yearly books on Italian politics (Istituto Cattaneo, Chronicles of events. Years 1992–2021). 14  As already mentioned, the term manovra finanziaria is used to identify the annual financial package composed of the budget bill and additional corrective measures introduced through bills and emergency decrees. Thereafter simply referred to as manovra/e. Because the fiscal year corresponds to the calendar one (1-1-YYYY/31-12-YYYY), it is a better reference to measure disputes on budget, allowing to grasp the actual conflict on each budget, from the moment when it is drawn and approved in the Council of Ministers to the moment the budget law is finally approved by the parliament. In case a government is appointed during the year, I counted the number of conflicts from that moment onward.

102 

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Prime Minister himself (Cotta and Marangoni 2015). Disputes have characterised highly fragmented governments with a large number of coalition partners, as in the Prodi and D’Alema governments. However, even homogenous coalitions such as the Berlusconi I and IV administrations show a high number of disputes, despite Berlusconi’s strong leadership. The Conte I and II governments were also highly contentious governments, and the match between a populist party such as the M5S and either a right-wing party (League) or centre-left group of parties proved to be extremely unstable. The degree of conflicts over the budget appears rather variable and seems to be unrelated to the characteristics of the government in charge (Table 4.5): in fact, the same cabinet in office for two consecutive years displays both high and low levels of conflict (e.g. Prodi II in 2006 and 2007; Conte II in 2019 and 2020).15 Exceptions concern technocratic governments, which are usually associated with a high degree of conflict about the budget, compared to other types of governments, probably due to the heterogeneous majority supporting those governments. Reasonably, the high variability among governments is due to the fact that quarrels on the budget are linked to several factors, such as the fiscal and economic conditions of the country at that moment or to any other issue potentially occurring during the budget cycle, not necessarily strictly linked with it. Technocratic Government From 1992 to 2021, seven legislative terms came in succession with the alternation of nineteen governments, four of which were technocratic (Table 4.5). Adopting a strict definition of ‘full technocratic government’,16 15  This is confirmed by statistical tests which evidence no correlation between different party systems and governments’ characteristics (total coalitional conflicts, parliamentary fragmentation, government ideological polarisation, type of government with minimal winning coalition as baseline category) and the degree of conflict over the budget. However, if a relation exists, it is primarily between technocratic governments and a higher degree of conflicts over the budget compared to other types of governments, probably due to the heterogeneous majority supporting those governments. 16  According to this definition, a government is technocratic if it fulfils three requirements: (a) the Prime Minister is a technocrat; (b) ministries are, for the most part, technocrats; and (c) their mandate is to change the status quo, different from ‘caretaker governments’ which instead have a more limited role (McDonnell and Valbruzzi 2014).

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the only cabinets that can really be considered as such are those led by Dini and Monti, while Amato I and Ciampi are more correctly ‘transition governments’ (Chimenti 1994), with the latter resembling more a ‘technocrat-­led partisan government’17 (McDonnell and Valbruzzi 2014: 7–12) although it is usually associated and judged just like the first two (Lupo 2015). Similarly, the Draghi government had only eight non-­ political ministers (out of 23), with the largest part of undersecretaries being already representative in one of the two chambers (Lupo 2021). In fact, Italian technocratic governments were held by experts who previously served in economic institutions, such as the Bank of Italy (Ciampi and Dini), the European Commission (Monti) or the European Central Bank (Draghi), and never held an elected office before. The main function these governments performed was to guide the legislature through the legislative term without giving rise to a new political government that might have been supported by a different majority than the outgoing one (Lupo 2015) with no electoral mandate.18 Technocratic governments have fulfilled a very relevant and uneasy role, as they have been entrusted with the burdensome commitment of facing heavy economic downturns. From Amato to Monti, they all had to reduce public expenditure, with burdensome choices about the allocation of expenditure and which budget categories to cut. In this respect, Draghi was the sole and unique (until now) exception. Even though he was appointed to face the pandemic crisis and the vaccination policy while becoming necessary to also confront the outbreak of the Ukraine war and the subsequent energy crisis, one of the main purposes of its mandate was precisely the design of the NPRR and the choice on how to allocate the funds of the NGEU. For the first time, a technocratic government was 17  More than half of the ministries of Ciampi government (14/25) had a political background and were not technocrats. However, Ciampi also perfectly suits the definition provided by McDonnell and Valbruzzi according to which ‘a prime minister or minister is a technocrat if, at the time of his/her appointment to government, he/she: (1) has never held public office under the banner of a political party; (2) is not a formal member of any party; (3) is said to possess recognized non-party political expertise which is directly relevant to the role occupied in government’ (2014: 4). 18  In particular, Amato and Ciampi were in office during a short legislative term defined as a ‘transition legislature’ (Ceccanti and Vassallo 2004) and managed the call to the ballots in troublesome situations of institutional turmoil and economic crisis (Duranti 2019; Wratil and Pastorella 2018). The 1994 elections were the first in Italian republican history carried out with an electoral system with a strong majoritarian component, the so-called Mattarellum, never before tested in previous ballots.

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appointed to ‘give resources to domestic socio-economic groups’ instead of take them, as in the other cases (Garzia and Karremans 2021: 110). It is interesting that even the management of such a huge amount of European funds was considered to be secured only with a non-political, technocratic-led government. One of the reasons why technocrats enter governments in difficult times is related to the fact that these may have a sort of advantage, being detached from the accountability mechanism and potential electoral spillovers that push political governments to be responsive to their electorate. Therefore, to uncover whether technocratic and political governments behave differently when they deal with public expenditure and to verify whether technocratic ones are more likely to substantially modify the budget compared to political governments, a dummy variable for the political versus technocratic nature of the government will be used. Ideological Alternation As explained at the beginning of Sect. 4.4, the ideological position of political parties will not be considered as a factor shaping the magnitude of budgetary changes.19 Instead, I will use as a control the degree of ideological shift of the government, that is changing of ideological position between two consecutive governments. In this regard, research has provided evidence about the effect of ideological shifting (from left to right or vice versa) on variations in the national budget (Schmidt 1996; Tsebelis and Chang 2004). Trying to implement their partisan priorities, governments would increase spending on their favourite budget functions while cutting their counterparts’ (Adolph et  al. 2020; Breunig 2011). Consequently, ideological shifts would probably amplify the magnitude of budget changes. The change of ideological position is measured on a 3-point scale, where 0 means no shift (i.e. when the whole majority supporting the government does not change with the next government, as in the case of Amato I, Amato II, Letta, Renzi, Gentiloni); 0.5 indicates that the new parliamentary majority was partially included in opposition parliamentary 19  In addition to the reasons already expounded (Sect. 4.4), there is a problem of multicollinearity between the left-right government positions and the ideological polarisation of the government (−0.86). All things considered, it stands to reason to exclude government ideology as an independent variable.

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groups during the previous government (Ciampi, Berlusconi I, Dini, Prodi I, D’Alema, Monti, Conte II, Draghi); and 1 when all parliamentary majorities were in opposition during the previous government (Berlusconi II, Prodi II, Berlusconi IV, Conte I) (Table 4.5).20 Across three decades, a total ideological reshuffle happened only during the period of ‘polarised bipolarism’ (Ieraci 2014) (2001–2011) when the ideological position of the left- and right-wing coalition in the political space reached its highest peak (Cotta and Marangoni 2015) and with the appointment, in 2018, of the first cabinet led by Conte made up of two populist parties. GDP Growth Broadly speaking, reasons to include variables about the economic situation of the country are straightforward, since it obviously has an impact on the government’s ability to substantially modify public spending. Periods of economic distress intuitively reduce the room of manoeuvre of the government in allocating funds, while periods of sustained growth grant higher leeway to increasing expenditure. Departing from the well-acknowledged economic literature (e.g. Wagner’s law [1890]) which maintains that the size of a government’s expenditure is determined by economic development, the Punctuated Equilibrium model has further specified that economic downturns are likely to produce marginal budget adjustments which, instead, are more substantial in periods of economic expansions. The justification behind this path can be traced again to the barriers erected by frictions which hinder the modification of the status quo (Baumgartner et al. 2009; Jones et al. 2003). Under these circumstances, the position of veto players during the decision-making process should move towards higher spending 20  A note about the value assigned to some of the cabinets is probably needed: governments taking on value 1 are (a) Conte I, made up of a completely renewed governing group compared to the previous government; and (b) those of the so-called period of alternation which occurred from 2001 to 2011. During this phase, the transition from Berlusconi II to Berlusconi III gets value 0 because in that moment the assignment of ministries to parties entering the coalition as governing members did not change the composition of the parliamentary majority supporting the government. D’Alema I saw the inclusion of UDEUR (0.5) while Amato II had the support of DEM, which gathered members of the PPP already supporting the previous government; hence it takes on value 0. Technocratic governments were all supported by some members already in government, thus they have been assigned value 0.5.

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convergence (Zohlnhöfer 2009). The economic context, even in case of economic restraint, and the actual moment when the crisis happens probably have a different impact, with the former more likely to produce medium-term effects on parties’ position whereas the latter sparks an immediate reaction. Therefore, two different variables are used: a first dichotomous variable taking on value 1 in case of crisis and 0 in case of no crisis (see above); and a second numerical variable about the GDP level, in order to take into account the general pattern of growth/decline of the national economy. For the second one I used data from the Italian National Institute of Statistics (Istituto Nazionale di Statistica, ISTAT).21 Table  4.5 compiles the scores of the main factors described above.

4.5  Discussion Case studies serve two general purposes; that is, to test hypotheses with the aim of generating/refining a theory or to interpret a case in light of the theory itself. There is no doubt that this work, being deeply rooted in a well-established theoretical framework, is located in the group of theory-­ guided case-study,22 which uses theories to interpret a particular case rather than a case to test theories (Bennett et al. 1994: 40). In fact, one of the main aims of the present study is to understand whether punctuations of the Italian budget policy during the last thirty years are provoked by the 21  ISTAT makes data available biannually on the national account and its components and currently rests on the European System of Integrated Economic Accounts (Esa) 2010 system: a system adopted in 1975 by the European Community to draw up a common framework adapted to Member States. Different guidelines have been issued over time, and national accounts have each time realigned the series according to the new system in place. As a consequence, we have available a time series from 1980 to 2017 (GDP at market prices in million euros with chained values; reference year = 2010) and another data series from 1995 to 2021. To build the full time-series for the period in analysis, I first deflated the GDP values of the period 1995–2021 (GDP at market prices in million euros with chained values; reference year = 2010), then I derived the mean between these and the GDP values of the period 1980–2017. For the analysis in Chaps. 5–7, I use values of the period under analysis: 1992–2021. 22  Other scholars define this group of case study as interpretative (Lijphart 1971: 691), disciplined-configurative (Eckstein 1975: 99–104) or case-explaining (Van Evera 1997: 74–75). At a general level, the differentiation between hypothesis-testing and interpretative case study has created several typologies, depending on the combination of the research strategy and case-selection technique (see Eckstein 1975; Levy 2008; Lijphart 1971).

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causal processes hypotheses by the PET or other competing theories. As the case interpretation is largely guided by the theory and the underlying analytic assumptions are explicit—a thing that reduces the logical contradictions—it would be easier to validate or nullify the theory empirically (Levy 2008). As explained in Chap. 2, the budgetary outcome and the magnitude of budgetary changes are determined by competing forces; some of them constrain the decision-makers, limiting their choices (i.e. institutional frictions); others intervene suddenly, creating a favourable moment for the change to happen (i.e. shocks, mostly fostered by external events). In this chapter, we have identified those factors that are likely to determine the occurrence and degree of changes in the Italian budget. These will be used as independent variables in the analysis conducted in the next sections, thus serving the hypotheses-testing purpose. For the first time, we will test the PET on the Italian case, covering thirty years of deep transformations, that affected the party system—profoundly altered especially after the emergence of populist parties such as M5S—the budgetary process, the difficult relations with European institutions, especially after the Eurozone crisis, the country’s worrying economic and financial situation for a few years that led to the appointment of technocratic governments to face new and unforeseeable crisis, such as the pandemic, but also the necessity of deciding how to allocate an unprecedented availability of funds provided by the European Union but subject to the implementation of specific reforms. We are assisted in that purpose by the inclusion of new variables that properly measure the impact of the European Union external constraints and of the several transformations of the Italian budgetary process, by taking into account both changing regulations and praxes. In addition to that, the book also pursues a hypothesis-testing purpose, as it aims to uncover the impact of variables never tested before by the PET and to introduce another level of analysis that gets more in depth into the dynamics of the decision-making process. Although the lack of cross-country comparison advises against the attempt to generalise findings beyond the specific Italian case, it might constitute a vehicle and a starting point for building new theoretical assumptions. In fact, the Italian case is in many respects similar to other European countries, being also one of the most important parliamentary democracies in Europe and the third largest economy in the Eurozone. Results can thus be useful to interpreting the role of the EEG and its changes over national budgets, with a special interest for those countries that went through harsh consequences

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of the Eurozone crisis and have been threatened by the ‘conditionality’ imposed by the Commission and forced to shape their budget accordingly (see also Chap. 3). To some extent, Italy was able to affect the path undertaken by the EU itself and the Commission during the pandemic crisis (Karremans and Cavalieri forthcoming), reverting to an approach hinged on fiscal responsibility over many years. Thus, here we have a juicy occasion to shed light on how a new type of external shock (i.e. the COVID-19 pandemic)—different from the one we studied in the past decades (i.e. the Eurozone crisis)—Eurozone transformed the pattern of budgetary changes. At the same time, the emergence of populist and anti-establishment parties is not new. Having the opportunity to test the impact of a fully populist government and the behaviour of populist parties dealing with public accounts is largely informative for all of the European countries that have been witnessing, for a few years, their rise and takeover. Clearly, many specificities are deeply rooted in Italian history and do not cross the borders towards other countries. In this specific case, the shortcoming of not having a comparative research design partially limits the scope of the theory-testing purpose, which calls on the need to sustain the study with an interpretative scope that helps give strength to the hypotheses-testing aspect. For this purpose, the predictors described in this chapter and later used for the theory-testing goal will be considered as interpreting the Italian case with a focus on a few manovre that will help to assess the balance of power between the government and the legislature and to further explain patterns of budgetary changes in the Italian case. All things considered, leaving behind the intention to potentially generalise results, pursuing the two goals through a structured use of the theory is expected to provide a deeper comprehension of the Italian case while also opening new avenues for comparative theory-testing research.

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CHAPTER 5

Incremental Changes or Punctuations?

5.1   Introduction Among policy venues, the budget shows the strongest inertia because frictions therein are heavier than in other policy venues (Baumgartner et al. 2009; Jones et al. 2003). Spikes occur either because of error-­accumulation processes and attention-shifting that make the change unavoidable, or because of an external shock. Institutional features matter as well, increasing or decreasing the possibility for change. This pattern is present in different institutional designs, governmental regimes and levels of government and signals a myopic decision-making process. Chapter 2 described how this process happens at a general level in budgetary policy. Is this the case in Italy as well? To date, we are still missing a comprehensive study about Italy’s budgetary policy dynamics that takes into account all the potential forces affecting budgetary outcomes, considering also how competing institutional structures (e.g. the national and supranational governance) interact. Chapter 3 went in depth into the structure and transformations of the multilevel governance, which is likely to highly determine the budget policy outcome, while Chapter 4 described in depth the main variables that we will consider in the analysis carried out in the next three sections. Here, we first present some hypotheses about the magnitude of budgetary changes and the effect of the predictors on the magnitude itself. In fact, while it is intuitive that parliamentary fragmentation, government

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polarisation, high degree of conflict and more stringent supranational regulations all stymie budgetary changes, we do not know if some prevail over the others and if these are counterbalanced by other forces, such as higher centralisation of the budgetary process, being a technocratic government, or external shocks which instead may sustain more significant modifications. Thus, which factors explain the degree of yearly budgetary changes in Italy? Different statistical models test the hypotheses to give an answer to the reader about both the size of annual adjustments and their direction, meaning whether the identified predictors are more likely to cause increases or decreases of public expenditure. Before engaging in the quantitative analysis, the dataset is fully scrutinised underlining the added value of having a twin set of data about the budget bill and the budget law, which allows the multifaceted investigation that will be conducted in the next chapters.

5.2  The Distribution of Budget Adjustments: Hypotheses Scholars of the PE school use the distribution of changes to understand the effect of cognitive and institutional frictions and external events on the magnitude of budgetary modifications. In their studies, they explore whether the identified factors are more (or less) likely to cause a leptokurtic distribution, thus focusing on the aggregated shape and characteristics of the frequency distribution. Instead, here I adopt as the unit of analysis the magnitude of budget changes, hypothesising an increasing or decreasing effect of the predictors on the degree of modifications. Whereas using single policy choices as the unit of analysis partially drifts away from the pure PE model, which predicts the aggregate distribution of policy decisions rather than single budgetary changes, the fact of considering the size of spending modifications has a clear implication for the overall distribution of budget adjustments. In fact, the next two chapters thoroughly study stability and change in the Italian budget, looking at both the aggregate distribution of yearly modifications and single spending decisions. Considering the theoretical framework presented in Chap. 2, we know that the budget is the policy venue where frictions operate with the highest strength because of the institutional design, which translates into a very high level of leptokurtosis of the frequency distribution of annual changes. To recap, a leptokurtic distribution of budget changes is

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characterised by a slender central peak of tiny changes close to 0 where the greatest part of modifications falls; weak shoulders where medium-sized adjustments are rare; and fat tails, where there is a good number of extreme changes, either large budget increases or cuts (see Fig. 2.2 in Chap. 2). Punctuations occasionally arise, usually after a long process of error accumulation; after such a dramatic change, there is a return to the status quo or the establishment of a new one, which will last until the error-­ accumulation course provokes a new disruption. However, this general ‘rule’ derived by several studies and empirical demonstrations has recently been called into question by new research, which shows that certain institutional settings put the system at high risk of instability, and in that case punctuations beget other punctuations (Robinson et al. 2007; Robinson et al. 2014). This perspective embraces the narrative that argues that punctuations are contagious (Boushey 2010) and that a system that experiences punctuations is more vulnerable to others and more, thus challenging the Jones and Baumgartner’s model of frictions. Therefore, the first simple hypothesis to test is whether budget changes in Italy obey a punctuated equilibrium dynamic as the PE model explains. General Punctuation Hypothesis The Italian budget has a leptokurtic distribution of budget changes. The idea that the institutional design affects the level of frictions and, as consequence, the magnitude and frequency of punctuated changes has gained growing attention in recent years (Breunig et al. 2010; John and Bevan 2012; May and Jochim 2013). Some claim that the propensity for punctuation is endemic and blame the institutional design—more likely those underdeveloped or poorly managed ones—for the probability of experiencing more punctuations (Robinson et al. 2014). Others focus on the division of powers and institutional fragmentation (Green-Pedersen and Walgrave 2014); on the ideological distance between governing and opposition parties (Breunig 2006, 2011) or within the government (Russo and Verzichelli 2016); or on the collective or deliberative nature of the decision-making process (Epp 2018). Yet none of these studies have been able to reach a synthetic explanation about the impact of the institutional setting: thus, I single out some factors that belong to the broad Italian institutional setting and evaluate their impact on the Italian budgetary outcome.

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Institutions and Frictions Wildavsky and Caiden remind us that ‘who has power over the budget does not tell us whether or not the budget is under control’ (Wildavsky and Caiden 2001: 18). Scholars have widely addressed the power of the legislature vis-à-vis the executive, particularly in supervising and controlling the budget (von Hagen and Harden 1995; Lienert 2005; Schick 2002; Stapenhurst 2008). Evidence from many comparative studies revealed that important cross-­ country variations exist: for instance in the United States the Congress is a powerful actor with vast authority over the budget policy (Meyers 2001; Schick 2008; Wildavsky 1992) whereas in other countries, such as France and the UK, the parliament has very little to say about budget figures (Chinaud 1993; Schick 2002). Most of these works rest on the ‘distributive politics’ approach (Weingast et  al. 1981) and the Common Pool Resource (CPR) logic, adopted to study mainly the welfare state,1 which explain that budgetary decision-making is exposed to a pro-spending bias which increases when the number of actors rises. In Italy, the praxis of single MPs inflating expenditure once the budget bill lands in the Chambers for the discussion phase has a very long tradition. Behaving out of political expediency during the parliamentary session, MPs try to redraw initial government accounts towards higher expenditure, especially in favour of their own constituency (De Giorgi and Verzichelli 2008; Damonte 2013). Through the lens of the PET, higher parliamentary fragmentation means a higher likelihood of undisciplined parliaments (see Chap. 4) which translates into widespread minor adjustments while acting as friction to substantial changes. Fragmentation Hypothesis Higher number of veto players in parliament reduces the magnitude of budget changes. The second aspect is related to the power of the legislature vis-à-vis the government and pertains to the possibility and degree of cooperation between the coalition parties that compose the executive. At the general 1  From this perspective, the growth of welfare state expenditure is the consequence of a large number of parties in the government coalition, which diminish the possibility of restraining spending (Bawn and Rosenbluth 2006; Persson et al. 2007), in particular in those systems with weak budgetary rules (Martin and Vanberg 2013).

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level, multi-party coalition governments need to behave strategically in order to see their policy targets adopted because of the joint control with other parties of government functions (Roubini and Sachs 1989a, 1989b; Strøm et al. 2006). The same does not happen in one-party governments which are rather powerful in controlling policy outcomes, thanks to a high degree of preference homogeneity and power concentration (Weaver and Rockman 1993). When dealing with spending decisions, coalition partners cannot implement their policy preferences without bargaining with other members of the government before achieving a compromise (Tsebelis 1995). This leads to the expectation that multi-party coalition governments tend to produce only marginal spending adjustments while single-party governments carry out more substantial changes. Obviously, it is not just a matter of numbers but also of ideological distance (see Chap. 4). Closer ideological positions between coalition partners find the government solid on specific measures, making budget changes easier and potentially sizable. In contrast, when polarisation is high not only does the executive need to haggle over policy decisions but the majority party itself also has to restrain any bold spending plans to prevent defections within the coalition that could cause the collapse of the executive. However, ideological polarisation could pave the way to error accumulation, bridling the smooth updating of spending decisions in response to the emergence of new information from the external context. In this respect, however, ‘polarization can create the need for extreme policy change, but does not give rise to the changes themselves; on the contrary, it suppressed them’ (Epp 2018: 166), because, after all, error correction requires an agreement to surmount centrifugal pushes caused by ideological distance itself. Polarisation Hypothesis Higher ideological distance within the governing coalition reduces the magnitude of budget changes. Institutional factors also include the design of the budgetary process and the strength of the Minister of Finance: these two aspects are usually closely linked and have a crucial role in affecting the budget outcome and a country’s fiscal discipline (von Hagen 1992; Hallerberg 2004). A reinterpretation of the CPR logic showed that the effect of the governing coalition’s size on the budget outcome could be swept aside by more centralised fiscal institutions (Martin and Vanberg 2013).

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In practical terms, a centralised budgetary process can counterbalance the pro-spending bias usually connected with multi-party coalition governments. However, if it seems true that a more centralised budgetary procedure enhances the ability of the executive to pursue its spending goals, by reducing the time necessary to come to an agreement and the tendency of the parliament to raise public spending, it is nevertheless unreasonable to think that a reform of the budgetary process, even in the direction of more centralisation, will allow ‘the government of a sovereign country to disregard, in practice, stringent budget rules’ (Perotti and Kontopoulos 2002: 217). In Italy, during the past decades the reinforcement of the Minister of Finance was strictly connected with—if not determined by—deterioration of public accounts that occurred between the end of the 1970s and the first half of the 1990s, with the gradual implementation of the European economic constraint. The many reforms that came later (see Chap. 3) did not solely aim to guarantee the Minister of Finance and its bureaucracy higher control over public expenditure, but followed an overarching process of rationalisation and empowerment of the government itself. That means a slacker friction on the steering capacity of the government during the budgetary session and a reduced impact of veto players in parliament. Centralisation Hypothesis Higher centralisation of the budget process increases the magnitude of budget changes. On the side of institutions, another crucial factor may considerably affect the size of budgetary changes, that is, the role of external constraint by the European Union. Broadly speaking, literature that measures the impact of budget stringency rules (such as balanced budget, carryover, budget cap rules [Alt and Lassen 2006; Poterba 1994; Primo 2006]) on state budgets uncovered the effect of balanced budget rules in alleviating political business cycles (Alt and Rose 2007; Bezes and Le Lidec 2015; Rose 2006). More generally, any budget stringency regulation perfectly fits the definition of friction by Jones and Baumgartner, because it creates the boundary which allows the system to stand still in an equilibrium of mainly marginal adjustments. Yet, such a constraint may fog rational information processing and the potential need to update incoming stimuli, simultaneously causing the accumulation of pressure that leads to punctuated

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changes. In fact, previous studies on the United States demonstrated that spending limit is a functioning tool to induce more efficient spending (Primo 2006) and, more precisely, that constitutional budget rules rein in both extreme cuts and considerable expansions (Breunig and Koski 2020). In the Italian context, domestic transformations cannot be read separately from the supranational context. The multilevel governance raised the complexity of the budgetary process, which is increasingly pre-­ determined and bounded by European regulations, and affects institutions, policies and politics (Börzel and Risse 2003). In fact, all of the reforms of the past four decades have tried to establish an enhanced role of the government over the parliament in setting and implementing its policy priorities. On the other side, stepwise changes that occurred from 1992 onwards and even more after the 2008 crisis have pursued higher coordination of European Member States’ budgetary policy while intensifying the external surveillance over national accounts. The two patterns of transformation are not detached from one another; instead, the former has been markedly affected by the latter, which nowadays seems to have gained an extremely relevant role vis-à-vis national institutions. Its intensified role after the signing of the Maastricht Treaty has brought about an increasing tension on budget decisions and on the implementation of a number of policies governments want to pledge to their electorate, which collide with more stringent fiscal and economic demands. However, although EU targets have appeared to be quite stringent in some cases, these additional demands do not handcuff governments and their power of decision. In fact, it seems that a sort of annual negotiation process between Member States and the EU is now a well-established practice, which makes the annual mood of fiscal targeting highly changeable according to the government propensity to accept or not stringent fiscal targets and to the assessment of the sovereign credit rating.2 External Constraint Hypothesis A stricter European constraint reduces the magnitude of budget changes. In contrast with institutional frictions, there are external events which could shatter a long-lasting pattern of stability creating disruption in the 2  As mentioned in Chap. 3 (see footnote 27), part of the literature is persuaded that real obligation comes from the financial markets and the level of the spread, rather than from the European external constraint.

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budget. As illustrated by recent works (Breunig 2011; Russo and Verzichelli 2016), exogenous shocks have an impact especially on the ability of parties to carry out ideologically driven spending choices.3 For instance, the 2008 economic crisis forced the US president at the time, George W. Bush, to commit his Republican government to the largest intervention into the private economy, which suggests that governments must respond to new issues regardless of their ideological stances (Epp et al. 2014). In the European context, the economic crisis has increasingly pushed governments to engage in cost containment or even in retrenchment policies, preferring responsibility over responsiveness (Mair 2011). Incidentally, some European countries exploited the occurrence of mounting attention towards economic affairs and the urgency imposed by the crisis to strategically issue some structural but unpopular reforms (Cioffi and Dubin 2016; Dukelow 2015; Moury and Standring 2017), responding similarly despite different ideological and coalitional stripes.4 The response to the COVID-19 pandemic crisis has been markedly different and the new face of European solidarity allowed governments to engage in expansionary policy with massive investments and spending in many different sectors. As suggested by the PET, I expect that any type of crisis would trigger a sudden necessity for major modifications in the budget, temporarily nullifying the impact of institutional and political frictions. Crisis Hypothesis Periods of crisis increase the magnitude of budget changes. As already illustrated, the factors described before act as countervailing forces which can hinder or facilitate budgetary changes. In addition, among the elements which constrain the possibility of higher modifications, we still do not know whether some prevail over the others, and 3  Despite the generalisation provided in their study about the responsiveness of different venues to public priorities and attention-shifting, Bevan and Jennings (2014) found out that the budget venue, compared to others, is almost non-responsive to the above-mentioned dynamics. However, their study compares the UK and the United States only, two systems which are extremely different from other Western democracies, with a time span covering about fifty years that stops at the beginning of the 2000s, in this way lacking compelling information about the effect of the economic crisis. 4  These studies explained that during the Eurozone crisis not all austerity measures implemented in the periphery of the Eurozone were actually imposed ‘from above’ but that governments exploited that rhetoric because they lacked the necessary support to issue them.

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which are more powerful for reining in policy changes. Before testing the hypotheses to understand these aspects, we first need to scrutinise in depth the dependent variable and how budgetary changes behave over time.

5.3   Assessing the Size of Yearly Changes In Chap. 3, we have reviewed the pattern of Italian national accounts, looking in particular at levels of deficit, debt, expenditure and revenue (see Fig. 3.1). What we are interested in here are the spending figures derived from the budget documents, specifically the budget bill and the budget law. The first is presented by the government and submitted to the parliament and contains the actual spending intentions of the cabinet; the second is approved by the Chambers after the parliamentary debate at the end of the financial year. The two documents are obviously partially different, as already shown in Chap. 4 (see Fig. 4.1), as MPs tend to make adjustments to the spending plan of the government during the discussion phase, a largely widespread custom during the First Republic (1948–1991). Data are published on the Italian parliament website, and each document contains a number of records about several types of spending and forecasts. The time frame covers thirty years (1992–2021).5 In this period, a major modification regarding the regulation of national public accounts has been put in place. Law n. 94/1997 altered the structure of the budget and the coding scheme used to identify the spending objectives of the state. Therefore, starting from the budget law for 1999, there are different sections and allocations that correspond to the internationally adopted Classification of the Functions of Government (COFOG) (ISTAT 1999), which splits public spending into ten macro-economic functions (I level) and sixty-six micro ones (II level) (see Table A.9).  Previously, budget authorisations were divided into twenty-one macro-functions without sub-levels. Obviously, the bill and the law changed concurrently. 5  This means that the analysis starts with the budget for 1993 and reaches the budget for 2022. There is a gap in 2002 (budget for 2003) for which detailed data about the budget law are not available. To address this issue, values are the mean of the budget law for 2002 and 2004. Values in Lire (1992–2003) are converted to Euros. A GDP deflator is used to adjust for inflation, thus final spending numbers are real values. In both sub-periods (1992–1998 and 1999–2021) there is a spending function pertaining to the payment of interest on debt (macro-category 20 for the first period and micro-category 1.7 for the second one). Both are removed from the study because they do not constitute actual spending intentions but their size is evident from Fig. 2.1 (Chap. 2).

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The dataset contains 196 variables about expenditure, considering both the budget bill and the budget law in the entire period, plus an additional 18 variables about political, economic and institutional aspects for a total of 214 variables. These categories dovetail with ‘Programs’ stated in the budget that represent the main functions and political-institutional strategic purposes of public spending, cross-cutting ministries for a real implementation of public sectors. Tables are drawn in a specific attachment to the budget (both to the bill and to the law) with estimates provided by the MEF (Tabella 2. Stato di previsione del Ministero dell’Economia e delle Finanze). The Shape of Italian Budget Differently from the plots seen in previous chapters, here and in the next sections, we will use as a dependent variable the percentage change of public expenditure from year t0 to t1 (Jones and Baumgartner 2005a: 216–220). The percentage-percentage method is the most commonly used one in this kind of study, preferred to the percentage-count method because of its ability to better depict the shifting priorities of the government, assuming that the agenda space is constant. Figure 5.1 shows the frequency distribution of yearly budget changes, across budget categories and years. To recall, from the PE model, we know that the budget venue is characterised by the highest resistance to transformation, and modifications are rare and extremely forceful. Empirically, we expect that this translates into a leptokurtic distribution of changes. The graph is a clear-cut confirmation of the punctuated nature of the Italian budget and confirms the general punctuation hypothesis. As I expected from the PET, the frequency distribution has fat tails, weak shoulders and a slender central peak. The excess of cases in the centre indicates a large number of very small modifications interrupted by radical changes visible in the tails. Medium-sized changes, signals of rational decision-­making, are sporadic compared to the substantial and tiny modifications. The D and W statistics, from the Kolmogorov-Smirnov (K-S) and the Shapiro-Wilk (S-W) tests, respectively, statistically reject the null hypothesis that the frequency distribution is normally distributed (Chakravarti et  al. 1967; Shapiro and Wilk 1965).6 The undisputable leptokurtic 6  The K-S test is based on the largest absolute difference between the observed and the expected cumulative distributions and requires specifying the mean and variance of the hypothesised normal distribution in advance. However, it is sensitive to deviations in the tails of the distribution. On the other hand, the S-W test does not need the hypothesised mean and variance and is considered a more powerful tool to study punctuations, because it is not sensitive to extreme values.

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400

D stat: 0.3846*** W stat: 0.0170***

4

200

2

1

> 200%

0

Counts

Density

300 3

100

0 −1

0

1

2

Percentage change

Fig. 5.1  Distribution of percentage change in Italy across budget categories and years (1993–2022). Note: the graph indicates the magnitude (x-axis) and frequency (y-axis) of yearly percentage change of all budget categories (twenty for the period 1993–1998 and sixty-six for the period 1999–2022) in the thirty years examined (N = 1825). The right side of the distribution is bounded at +200 per cent (there are some cases of larger increases which are grouped into a single bar) to prevent the distribution from being extremely right skewed. The left side is naturally bounded at –100 per cent, meaning that the programme was cancelled. The D (Kolmogorov-Smirnov test) and W (Shapiro-Wilk test) statistics confirm that the distribution is non-normal

distribution of budgetary changes allows us to confirm that the Italian budget policy obeys the disproportionate information processing model, with policy-makers constrained by cognitive and institutional frictions to produce only tiny adjustments to the previous year’s budget, and forced to suddenly and substantively change the budget when a necessity unexpectedly emerges or an external shock occurs, causing the so-called punctuations. Yet, the threshold for a change to be defined as a punctuation is still an arbitrary decision of the researcher(s)7 and a shared definition is still lacking (Robinson et al. 2014), along with any agreement about the frequency 7  The choice of using a 200 per cent for Fig. 5.1 follows previous research (Breunig and Koski 2006; John and Bevan 2012; Sebők and Berki 2018), although some scholars are still doubtful about the appropriate cutoff point (Robinson et al. 2007a; Robinson et al. 2014).

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of punctuations which justifies the analysis. Despite a few attempts to overcome this limit by either using a different method to define punctuations (e.g. based on a cutoff percentile, Epp and Baumgartner 2017) or developing a typology which grasps the specific characteristics of budget punctuations (John and Bevan 2012), these operational improvements have not called into question previous results, nor undermined empirical support for the theory (Epp and Baumgartner 2017). Still, before moving forward with the analysis, it is fundamental to scrutinise what falls beyond the 200 per cent cutoff point. In fact, it is not certain that everything that looks like a punctuation is a real punctuation. John and Bevan (2012) for instance distinguish between procedural punctuations caused by misclassification, and lowand high-salience punctuations. Among the last two, low-salience punctuations are related to growing attention towards a topic, which however does not have an impact on the public arena (as in the case of a technical issue or legislation revisions), while high-salience punctuations are actual and large policy alterations related to periods of mounting attention by media and public opinion, driven by external events or partisan preferences. As this final typology relates to policy change galvanised by attention, the categorisation they apply reflects the true importance of topics, as prescribed by the tenets of the attention-based model and PET. In spite of the value of their work, a few crucial differences between their data and those on the Italian budget prevent us from applying the same typology. First and foremost, the UK parliament’s act and the budget are substantially different and subject to different mechanisms. Besides the fact that institutional frictions are stronger in the budget venue, it is also the least responsive to public priorities and attention-shifting (Bevan and Jennings 2014). Appendix B scrutinises at length data about the budget bill and the budget law, with an assessment of extreme changes based on qualitative and quantitative judgement. The clean dataset of the budget law contains twenty-six extreme changes (higher than 200 per cent increase), of which fifteen are potential punctuations and eleven sudden peaks; the budget bill shows twenty-four huge increases converging with those of the budget law (of which fifteen are potential punctuations and nine are sudden peaks) while, among those present only in the budget bill, out of seventeen extreme changes, we include in the analysis four potential punctuations and thirteen sudden peaks. Summary statistics (Table  5.1) describe in detail the observations of the budget law and the budget bill.

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Table 5.1  Summary statistics of percentage changes in the budget bill and the budget law Min

Mean Median Sd

Law –100 11.24 0 Bill –100 12.37 0

Max

Skew

Kurtosis L-kurt. IQR

99.94 2462.14 12.71 242.71 107.84 2437.35 11.98 203.15

0.58 0.60

N

16.33 1802 15.98 1797

Note: the number of observations of the two datasets is slightly different because the budget bill contained a few extreme changes that have been left out since these are meaningless changes that would have caused misleading interpretation of results if kept. For a detailed review, see Appendix B

Table 5.1 above better explains what we have already visualised in Fig. 5.1. The distribution of budget changes ranges from –100 per cent (meaning that precise budget categories were not financed in a given year) to +2462.14 (budget law).8 However, the middle 50 per cent of the distribution is around 16.33 per cent, as described by the Interquartile Range (IQR), signalling that the budget continuously increases. The exceptional high skewness is due to the fact that most of the extreme adjustments occur in the right (positive) side of the distribution, since it is impossible for a spending programme to decrease more than 100 per cent (meaning the total suppression of the programme). The high kurtosis value and L-kurtosis inform us about the shape of the distribution.9 As a reference point, the kurtosis and L-kurtosis scores of a Gaussian function are 3 and 0.12, respectively (Breunig and Jones 2011) while budgets are set around 17.64 and 0.46. In our case, the two high degrees of kurtosis and L-kurtosis prove unquestionably that budgetary changes obey DMCPP. The interesting fact that the median value is at 0 further confirms that the PE dynamic prevails in the Italian budget (additional analysis of the distribution is shown in Appendix B). 8  To avoid confusion and redundancy, henceforth I will consider only the budget law to describe the dataset. In fact, the budget law and the budget bill do not diverge that much and the analysis developed later in the chapter will focus only on the budget law. 9  The first is a standardised measure of the fourth moment of a distribution which assesses how peak or flat the distribution is, through a scale-free summary measure (DeCarlo 1997). Yet, kurtosis presents a crucial drawback, because of its statistical sensitiveness to extreme values (Groeneveld 1998), which makes it a rather unsteady empirical measure. To deal with this issue, scholars prefer to use the L-kurtosis: a measure of kurtosis based on L-moments, which calculates the fourth L-moment by normalising kurtosis by the variance (the second moment). This estimate has the merit of being less affected by extreme values and reliable even with a relatively small set of observations (Hosking 1990). Ranging between 0 and 1, it indicates a leptokurtic distribution as far as its value increases.

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Identifying Policy Cycles of Italian Budget Through Annual Changes Until now, we have looked at budgetary changes using a pooled distribution which takes together all the annual changes across budget categories and over time. In fact, at this stage, it is possible to detect the evolution of the Italian budget without incurring potential errors due to some huge, deceptive changes (already omitted, see Appendix B), and check how budgetary changes occur in each year of the time span considered. Boxplots in Fig. 5.2 illustrate that the median percentage change fluctuates around 0 for most of the time (the median value is actually 0) with a few deviations. Some years are marked by higher variability than others. Yet, while in some cases large positive changes counterbalance negative ones revealing rather compacted boxes, several years are characterised by higher variance, as described by the distance between the 1st and 3rd quartile and by the whiskers. This is especially the case of those years exhibiting the largest positive adjustments (represented by diamonds) such as 2001, 2016 and 2021. 2500 1500

Percentage change

500 100

50

0

*

*

*

*

*

*

*

*

*

*

*

*

*

* *

*

*

*

*

*

*

*

*

*

*

*

*

*

−50

−100 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017 2019 2021

Year

Fig. 5.2  Boxplots of annual percentage change and outliers (1993–2022). Note: 1999 has been removed because it marks the shift between two different coding schemes, thus it was not possible to compute the growth of single categories. Stars represent the average percentage change for each year; shaded grey dots are positive and negative modifications on a scale ranging from –100 up to 100 per cent and diamonds are the extreme positive changes higher than a 200 per cent increase

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The figure is well-suited to the policy cycles pinpointed in Chap. 3 (Table 3.2), which generically draw the history of Italian public budgeting. To recall, starting from 1992 and during the late 1990s, Italy was engaged in the process of convergence towards the Maastricht parameters, whose fulfilment was required to enter the EMU (Della Sala 1997; Quaglia and Radaelli 2007). The budget law for 1997 indicates the turning point which ensured the inclusion of Italy in the first group of countries joining the single currency. This was possible after a few years of cuts, as shown by the graph. After that moment, a period of marginal adjustments followed until 2001, when the government substantially raised expenditure (about 10 per cent on average). The budget law issued at the end of 2000 by the Amato II government was fostered by a revitalised economic and financial situation. Thanks to a continuing slowdown of public debt and a high level of expected GDP growth (about 3 per cent) stimulated by the domestic demand (DPEF 2001–2004), it was possible for the government to substantially raise public spending. However, as ascertained by the DPEF 2002–2006, the forecasts were excessively optimistic, requiring that the budget be curbed again, and afterwards leading to a few years of budget ‘immobilism’. The budget for 2009, the first one issued by the newly appointed Berlusconi IV government on the eve of the Great Recession, promised the relaunching of a ‘neo-liberal revolution’, which was to be achieved through the reduction of the costs of the public machinery. The following years were marked by the Eurozone and economic crisis that severely affected Italian public accounts at least until 2014, when the percentage change displayed in the graph again began to grow slowly. It then stabilised around small adjustments until the COVID-19 crisis started in 2020, for which huge amounts of public funds have been allocated both in that year and for the following ones, thanks also to the huge amount of funds made available by the European Union.

5.4  Explaining the Magnitude and Direction of Yearly Changes At this point, we have become familiarised with the tenets of the PET and the general dynamics of the Italian budgetary policy over the past 30 years. We know from the previous section that the distribution of budget changes in Italy has a leptokurtic shape (see Fig. 5.1), meaning that is characterised by tiny changes for most of the time but, on rare occasions, extreme changes called punctuations undermine the status quo. What are the reasons for this

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punctuated pattern? At the beginning of this chapter, I hypothesised how some relevant factors may impact the magnitude of budget changes in Italy, which is what we are going to test in the remainder of this chapter. Magnitude of Yearly Changes Methodologically, I now estimate a model that predicts the magnitude of spending modifications. Scholars working on budget changes rest on quantile regression, which allows the use of the entire distribution of cases, while at the same time clarifying the impact of predictors both on stasis and on punctuations. Because the focus is on the size of changes (tiny or huge), I leave aside for the moment the direction they take (increases or cuts) and use as a dependent variable the absolute values of percentage changes (Fig. 5.3). This means simply mutating negative observations in Fig. 5.1 into positive, with the aim of showing the occurrence of minor and major modifications. The figure vividly sketches how the largest number of cases is made by tiny changes, while the number of observations in each bin decreases gradually as we move towards higher percentage change. More than 350 observations are smaller than 2 per cent, corresponding to the 25th percentile of the distribution. Among these, more than one-third are even lower than 0.05 per cent change. The maximum value is 2462.12 per cent, with the 95th percentile including cases with a percentage change higher than approximately 95 per cent increase. The bin grouping together modifications higher than 200 per cent counts twenty-nine cases, while thirty-seven are between 100 and 200 per cent; however, these very high modifications (above 100 per cent) represent only 4 per cent of observations. To recall, I hypothesised that some institutional and political variables, along with external events, determine the size of annual budgetary changes.10 More precisely, parliamentary fragmentation and government ideological polarisation hypotheses predict that a higher number of veto players in parliament and wider ideological distance within the governing coalition would decrease the magnitude of budget changes. Both factors have long been associated with gridlock in the decision-making process. Over the past thirty years, parliamentary fragmentation has ranged from 3.08 (XVI legislature, Berlusconi IV) to 7.88 (XII legislature, Berlusconi I and Dini), with lower scores indicating a small number of effective parties in parliament at the seats level. Ideological distance varies between 0.65 (Berlusconi IV) and 6.5 (Draghi; followed by D’Alema I–II and Amato II,  Summary statistics of the independent variables are presented in Appendix A, Table A.10.

10

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400

Frequency

300

200

100

> 200% 0 0.0

0.5

1.0

Percentage change

1.5

2.0

Fig. 5.3  Distribution of percentage change across budget functions and years (absolute values) (1993–2022). Note: the graph indicates the magnitude (x-axis) in absolute values and the frequency (y-axis) of yearly percentage change of all budget categories (twenty for the period 1993–1998 and sixty-six for the period 1999–2022) in the thirty years examined (N = 1572). As in Fig. 5.1, the right side of the distribution is bounded at +200 per cent (there are some cases of larger increases which are grouped into a single bar). The vertical grey lines indicate the 15th, 40th, 60th and 85th percentiles that will be used later to estimate the quantile regression model

with a score of 5.16) where lower values describe ideologically close coalitions while higher values mean coalitions with high ideological distance among governing partners. According to the budgetary regime hypothesis, I expect that higher centralisation, which grants more power to the government, increases the magnitude of budget adjustments. Scores for this variable range from eleven to twenty-six and follow the main changes of regulations and practices reviewed in Chap. 3. In contrast, results supportive of the external constraint hypothesis would demonstrate that more power of control in the hands of European institutions is associated with smaller spending adjustments. The lowest European constraint is in the 1990s, immediately after the signing of the Maastricht Treaty (with the measure taking on

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value 3) and the highest is from 2014 after the implementation of the Two-Pack. Finally, sudden unforeseen external events may trigger a major disruption in the status quo and cause extreme changes, as they call for an immediate action by policy-makers. From 1992 to 2021, Italy witnessed two major shocks: the Eurozone crisis, from 2009 to 2014 and the COVID-19 pandemic, in 2020 and 2021. A dichotomous variable takes on value 1 in those years and 0 in the others. Alongside the main independent variables used to test the hypotheses, I also include five controls that may affect the likelihood of witnessing radical spending modifications. One is about the degree of coalitional conflict on the budget. Broadly speaking, we know that internal disputes among coalition partners have always marked the life of Italian parties and governments, although to a lesser extent after the fall of the First Republic (1948–1991). Conflicts vary according to the actors involved, reasons for the disputes and consequences of the same. With the aim of understanding Italian budgetary policy, we consider only conflicts surrounding the annual budget, to verify whether more disputes led to smaller adjustments, as I would expect. Taking into account only the degree of conflict over the budget rather than the total level of conflict within the government sheds light on what happens during the annual manovra, which is unrelated to the fragmentation and polarisation of the government. In fact, frequently, a cohesive cabinet tended to argue only during the budgetary session and in relation to the content of the budget. This was the case, for instance, of the Berlusconi I government which, despite its low fragmentation and polarisation, fell after only eight months from its appointment  precisely because of quarrels that arose during the budgetary session. The measure is the proportion of disputes about the budget over the total number of conflicts in the fiscal year and ranges from 0 during the discussion and approval of the budget law for 2002 (Berlusconi II) to 53.06, when the Conte II government discussed the budget for 2020. A second control variable differentiates between technocratic and political governments to monitor whether the former are more able to produce higher budgetary changes, not being constrained by a political mandate. To deal with the ideological alternation from one government to another, which is likely to increase the magnitude of budgetary changes, I first develop a three-point scale variable; then I derive two dichotomous variables pointing to partial or complete shifts, where the reference category is not ideological alternation between two consecutive governments. Finally, the last control variable considers the general economic condition

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of the country, measured through GDP growth from one year to another. Altogether, the whole model is described by the following formula:



Annual percentage change = b 0 constant + b1 parliamentary fragmentation + b 2 government ideological polarisation + b 3 budgetary process centralisation + b 4 EU external constraint + b 5 crisis + b 6 conflict on the budget + b 7 technocratic government + b8 ideological alternation + b 9 GDP growth + e



Considering the particular characteristics of the dependent variable and how budgetary changes are distributed, I use a quantile regression model to predict the magnitude of yearly adjustments, instead of a classic Ordinary Least Square (OLS) model.11 Basically, the equation is estimated at different percentiles of the distribution (15th, 40th, 60th and 85th12) of the dependent variable, in order to verify whether the effect of independent and control variables is not linear to the magnitude of budget change, as hypothesised. This means that predictors may account for minor adjustments and gradually lose explanatory power when moving to higher budget changes (or vice versa). Using a quantile regression instead of a simple OLS allows this undertone to be singled out. Results of the full model and three others where the predictors are progressively added are presented in Table A.11 (Appendix) and graphically in Fig. 5.4. Each plot represents the impact of an independent variable on the size of budgetary changes (in absolute values) at different percentiles. As evident and clearer from Table A.11, conditional distribution of budget changes by percentiles is rather different according to the covariate. The effect of the covariates is not linear but goes up as we move towards the 85th percentile and thereinafter. Actually, in most of the cases it remains rather stable across the 15th and 40th, then for some variables (government ideological polarisation, budgetary process centralisation, conflict 11  Quantile regression extends the classical OLS estimation of conditional mean models providing estimations for conditional quantile functions (Breunig and Jones 2011). 12  At the 15th percentile, the measure of budget change takes on value 0.93 per cent, at the 30th it is 3.20 per cent, at the 60th it is 13.33 per cent and at the 85th percentile it is 45.30 per cent.

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Fig. 5.4  Quantile regression plots (dependent variable in absolute value). Note: each plot interprets the estimation (y-axis) of the independent variables at different percentiles of the dependent variable (x-axis). The x-axis shows the reference quantile τ of the magnitude of budget changes (from small to large modifications) and the y-axis is the size of the estimated effect produced by the covariate. The effect of a one-unit change of the covariate on the dependent variable (holding other covariates fixed) is portrayed by lines with dots. The grey area marks the 95 per cent confidence band for the quantile regression. The red horizontal line is the OLS regression coefficient, which is linear because it does not vary across quantiles, while red dashed lines are the 95 per cent confidence intervals around the OLS regression line. These lines are useful to compare the confidence intervals of the OLS and quantiles, which are explicative of the significance of results

about the budget, technocratic government and GDP growth) it starts rising from the 60th and is even more pronounced at the highest percentile. In a few cases, coefficients become statistically meaningful accordingly.13  The ANOVA comparison of the coefficients along percentiles is statistically significant with p-value < 0.001, confirming the notable reinforcement of the impact of predictors as we move towards higher percentiles. 13

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The full model tells us that the crisis hypothesis is confirmed, with the variable indicating that the occurrence of the Eurozone crisis and of the COVID-19 pandemic is statistically significant at the 60th and 85th percentiles. The positive and growing effect of the predictor on the size of budget changes indicates that when a sudden external shock occurs, it increases the magnitude of modifications. Passing from ‘normal times’ to a period of crisis corresponds to a 7.80 percentage-point increase in the size of change (at the 60th percentile) and almost doubles at the 85th percentile, where a period of crisis registers a 19.01 percentage-point increase. This confirms that policy-makers substantially revise the budget only when a sudden necessity forces them to do so, while in ‘quiet’ moments policy-makers are constrained by cognitive and institutional frictions which compel them to engage in only tiny adjustments. Among the other factors hypothesised to have explanatory power, only government ideological polarisation is statistically meaningful (at the 40th percentile). The negative effect of higher ideological distance among the governing partners rises as we move towards higher percentiles, indicating that the more ideological heterogeneity of the government, the less the likelihood of witnessing considerable changes. This is precisely what we expected, as a discordant government limits any attempt at major spending changes to prevent defections and conflicts. Still on the side of ideology, alternation turns out to be statistically significant and with a negative impact on the size of budgetary changes compared to the reference category, which indicates ideological continuity. The effect is more pronounced as we move towards higher percentiles. Holding other variables constant, there is almost no difference between ideological alternation (both partial and complete) and ideological continuity at the 15th percentile. At the 40th percentile, switching from the reference category to the total ideological shift is already statistically relevant and reduces the size of budgetary changes by 3.34 percentage points. Moving towards the 60th percentile, complete ideological alternation becomes relevant as well. Interestingly, moving from no ideological alternation to partial ideological alternation has a broader effect than moving towards complete alternation, as displayed by the coefficients of the predictors. Thinking about Italian history, this would mean that the period of alternation (2001–2008), characterised by ideologically divergent governments with allegedly opposite spending preferences, did not foster noticeable revisions of the budget. It seems that only governments whose parties share similar ideological stances are able to produce bigger spending modifications, probably because they continue what they or some of them have

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previously begun to implement. However, once we approach the highest level of change at the 85th percentile, these variables lose their explanatory power in favour of the technocratic nature of the government and of the crisis, whose effect remains stable. Technocratic governments have a critical and negative impact compared to political ones. Basically, the first diminishes the magnitude of budgetary changes compared to the second and this reduction of the size of modifications is more substantial as we move towards higher percentiles. Other predictors do not correlate significantly with the magnitude of budget modifications. This is evident from Fig. 5.6, where dots representing the point estimates fall inside the confidence intervals of the OLS regression, suggesting no difference among percentiles. Dots also intersect with zero on the y-axis, meaning that the effect is not statistically powerful at that percentile. The only exceptions can be found at the 90th percentile when accounting for the impact of parliamentary fragmentation and EU external constraints. To be more confident of the results, Appendix A (Table A.12) reproduces the results of a logistic regression, which uses a dichotomous dependent variable instead of a numerical one. Direction of Yearly Changes In the previous section, we assessed the main predictors of tiny changes and punctuations in the Italian budget. The approach previously employed had the purpose of predicting policy instabilities, without distinguishing between positive and negative spending modifications. In fact, the effect of the covariates we highlighted applies to both increases and decreases without differentiating by their direction, but focusing only on the size of budget adjustments. This shortfall calls attention to the fact that I equalised positive and negative transformations, whereas their direction is likely to matter. In this respect, previous findings showed that the right (positive) tail is more punctuated than the left one (Jones et al. 2003; Breunig and Jones 2011).14 To address this issue and have a deeper comprehension of Italian budget policy, I once again estimate the quantile regression model using the actual percentage change and its direction (whether it is a growth or a cut). This analysis is justified by the divergent pattern of changes in the left and right tails already sketched out in this chapter, where I shed light on the larger leaps of positive adjustments compared to negative ones. The 14  It is worth considering that this is partially the consequence of the measure employed, because the percentage change naturally delimits the left tail at 100 per cent, meaning the cancellation of the programme which does not happen for the right positive tail.

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400

Frequency

300

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Fig. 5.5  Distribution of percentage change across budget functions and years (real values) (1993–2022). Note: the graph indicates the magnitude (x-axis) in real values and the frequency (y-axis) of yearly percentage change of all budget categories (twenty for the period 1993–1998 and sixty-six for the period 1999–2022) in the twenty-nine years examined (N = 1572). The right side of the distribution is bounded at +200 per cent (larger increases are clustered into a single bar for graphical purposes). The vertical grey lines indicate the cutoff points at the 10th, 30th, 70th and 90th percentiles that will be used later to estimate the quantile regression model

equation remains the same. This time I estimate the equation at the 10th, 30th, 70th and 90th percentile15 of the dependent variable which now takes a positive or negative direction (Fig. 5.5). Looking at these percentiles it is possible to address the distribution of budget modifications ranging from very large decreases to extremely large increases. 15  The cutoff points are different from the analysis conducted in the previous section because the values are obviously different, as here I am considering real values of budgetary changes, not absolute values. As I want to ensure that different sizes of budgetary changes are considered and explained, I changed the percentile at which the dependent variable is assessed. At the 10th percentile the measure of budgetary change has value –29.91, at the 30th it is –5.42, at the 70th it is 5.71 and at the 90th percentile it is 39.22 per cent.

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Fig. 5.6  Quantile regression plots (dependent variable in real value). Note: each plot interprets the estimation (y-axis) of the independent variables at different percentiles of the dependent variable (x-axis). The x-axis shows the reference quantile τ of the magnitude of budget changes (from large cuts to large increases) and the y-axis is the size of the estimated effect produced by the covariate. The effect of a one-unit change of the covariate on the dependent variable (holding other covariates fixed) is portrayed by lines with dots. The grey area marks the 95 per cent confidence band for the quantile regression. The red horizontal line is the OLS regression coefficient, which is linear because it does not vary across quantiles, while red dashed lines are the 95 per cent confidence intervals around the OLS regression line. These lines are useful to compare the confidence intervals of the OLS and quantiles, which are explicative of the significance of results

Once again, Table A.13 in the Appendix shows the three incomplete models and the full model, while Fig. 5.6 displays the results. It is fundamental to bear in mind that the reference quantile τ of the magnitude of budget change on the x-axis now varies from large cuts to large expansions. This modifies the shape of the lines that we saw in Fig. 5.4 which are

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now affected by the negative values of the dependent variable. The y-axis is the size of the estimated effect produced by each covariate. The impact of independent variables is not linear; rather, regression results suggest that they have a distinct effect on large cuts, minor adjustments (positive and negative) and large increases. Additionally, some predictors improve their explanatory power and become statistically meaningful compared to the previous model that used absolute values, providing interesting insights about mechanisms which Italian budget changes are subject to.16 To begin with, parliamentary fragmentation is now statistically meaningful across all percentiles with a positive effect on the size of budget changes, which rises at the lowest and highest percentiles (10th and 90th). As these two indicate very large budget cuts and very large budget increases, this means that a higher number of parties in parliament alleviate budget curtailments and amplify budget expansions. In this respect, previous studies on the Italian budget highlighted the tendency of MPs to adopt a voteseeking strategy and to raise expenditure on policies preferred by their own constituencies, producing several micro-adjustments to the budget. In the Italian tradition, this custom, known as a ‘stagecoach attack’, was blamed for the failure of the government to pursue its spending goals and produce radical modifications. Quantile regression results confirm it and show that this tendency not only prevents considerable budget curtailments but also substantially lifts expenditure, especially at higher percentiles. Government ideological polarisation, statistically significant only at the 10th and 30th percentiles, changes from a positive to a negative sign as we move towards budget growth. Governing coalitions that are more ideologically heterogeneous restrain the possibility of substantial reductions of the budget but, at the same time, also prevent substantial increases, indicating that policy changes produced by disjointed governments simply fluctuate within a small range. Similarly, the increased centralisation of the budgetary process diminishes the extent of budget cuts and limits budget expansions (although the predictor loses statistical power at the 90th percentile, when very high increases are considered). Apparently, the higher steering capacity of the government during the budgetary session can minimise the potential intervention of the parliament when it tries to both considerably cut and considerably raise the spending proposal of the government. 16  Once again, the comparison of the coefficients along percentiles (ANOVA test) is statistically meaningful with p-value < 0.001.

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Other predictors fail to have a predictive power on budgetary changes, with few exceptions. The occurrence of an external shock is statistically meaningful at the 70th percentile, meaning when small positive budget adjustments are implemented. However, although not significant in the whole distribution, the sign of the predictor tells us that the shattering events that occurred in Italy over the past thirty years deepened massive cuts but also intensified large expansions. With hindsight, this should not be a surprise as the shocking events that affected Italian budget policy were the Eurozone crisis which demanded bold austerity measures, and COVID-19 which instead encouraged rich spending upsurges. This also explains the interesting positive effect of European Union’s external constraint on very large budget increases (90th percentile), in contrast to what one may expect. However, the stringency of the EU has lately slackened, especially after the recent pandemic crisis and countries have been allowed by the Commission to hugely inflate national expenditure. Probably, before the pandemic crisis, the enhanced surveillance of the EU over Member States’ public accounts hindered national decision-makers’ possibility of undertaking substantial changes, curtailing rooms of manoeuvre to pursue their spending preferences. However, as reviewed in Chaps. 3 and 4, the European Union’s external constraint has gone through a sort of learning process, redesigning itself from pure surveillance to, recently, solidarity, which considers the economic necessities of countries and allows them to deviate from the supranational parameters, as actually happened in the last two years. Finally, as confirmation of the model in the previous section, ideological alternation has a negative effect particularly on small increases (it grows at the highest percentile, but it loses significance). Ideological continuity of consecutive governments paves the way to more substantial budgetary changes, especially increases while ideological alternation interrupts the implementation of previous spending choices.

5.5  Discussion We started this chapter with some hypotheses about the role of institutional frictions and external shocks on the size of budget changes to verify the PET and check which are the strongest frictions to substantial budget modifications in Italy. The regression results suggest that the situation is far more complicated than what I hypothesised. Overall, I first assessed the size of budget changes, disregarding their direction, then I added this

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piece of information to explain how each independent variable affects budget cuts and budget increases. Overall, when looking at the effect of the covariates on the size of budget changes, I found almost no support for my hypotheses but for the crisis one. Rather, causes that I recognised made way for two controls that turned out to be the most powerful predictors, namely government’s ideological alternation and being a technocratic government. On the first aspect, we learned that ideological continuity makes it easier to substantially revise the budget. Although we may expect the opposite, as new incumbents would try as much as possible to implement their spending preferences (which are allegedly different from the previous government with a divergent ideological position), the lower possibility of producing radical change as soon as a government takes office does make sense. Ideologically coherent governments can implement their spending choices starting with small adjustments as incumbents and, as time goes by, gain incisiveness and room to manoeuvre and, thus becoming more able to radically alter the budget. Instead, once a new government with divergent ideological and spending preferences takes office, it has to deal with a status quo distant from its ideal point. In such a circumstance, the incumbent government would probably try to dramatically adjust the budget towards its spending preferences but would face some relevant frictions that hinder its ability to do that. It will be forced initially to change the budget only slightly. Interestingly, the effect of a partial ideological shift is more pronounced than the complete alternation, indicating that the presence of parties that were previously in office is a real limit for radical modifications, as those parties that made specific spending decisions in the previous government are unlikely to let those policies be totally replaced. As for technocratic governments, the model associates them with a lower occurrence of radical budgetary changes (either raises or cuts). This is curious, as in the last three decades technocrats have always been appointed to ‘solve’ severe economic downturn and to engage in massive cuts. Following the results of the quantile regression we are led to think that their intervention spreads across a number of budget categories, thus their notable intervention may not be visible in the form of punctuations. Once we turn to explaining the direction of changes instead of looking merely at their magnitude, we substantially improve our knowledge of Italian budget policy. The model estimates support the fragmentation and polarisation hypotheses. As already mentioned, the parliamentary session before the approval of the budget has always constituted a transformative

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arena for individual MPs trying to curry favour with their constituencies (De Giorgi and Verzichelli 2008). From the statistical analysis, this takes the shape of small adjustments to several spending functions in case of cuts, which prevent people from witnessing massive reductions. At the same time, a growing number of veto points in parliament continues to produce micro-sectional adjustments to a wide range of spending categories but also to favour very large budget amplifications. Despite the many reforms that took place in the past decades, with the effect of centralising the decision-making process in the hands of the executive and preventing uncontrollable corrections by the parliament, the ‘stagecoach attack’ still characterises Italian budget policy. Whereas it has been argued that more centralised fiscal institutions can overcome the shortcomings of an institutional setting that compels the government to surrender to the high power of parties, especially in highly fragmented party systems (Martin and Vanberg 2013), in the Italian case even recent normative stretches are not remotely the determining factor of the magnitude and direction of budget transformations. Ultimately, what has already been noted when studying budget curtailments—that is that ‘a favorable procedure seems to be a necessary but not certainly a sufficient condition’ (Cavalieri et al. 2018: 341)—can be extended to budget upheavals as a whole, regardless of their directionality. Institutional frictions do not only address the number of veto points, but also have much to do with ideology and polarisation of the governing members. Leaving behind the First Republic (1948–1991) tradition of single-party minority governments and surplus coalitions gravitating around a core party (Russo 2015), the past two decades have still delivered a few ideologically close executives, such as the centre-right ones, especially during the ‘period of alternation’. Polarisation has a clear effect on budget cuts, both massive and small. In fact, ideologically heterogeneous coalitions are unable to agree on how to implement budget curtailments. Broadly speaking, ideologically close governments have higher power concentration thanks to a high degree of preference homogeneity. In contrast, multi-party coalition governments formed by parties with divergent and sometimes opposite views and goals, which will possibly compete against each other in the following elections,17 need to carefully 17  This aspect sometimes encourages coalition members to distance themselves from government’s policy, or even to defect (Bonoli 2001).

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choose their spending targets, usually ending up focusing on those issues on which the governing partners agree while avoiding controversial topics (Bawn and Rosenbluth 2006). We demonstrated that, in the Italian case, this happens mostly by avoiding budget cuts. When we assess the magnitude of budget changes without digging in depth into their direction, the model supports the crisis hypothesis. The analysis proves that the occurrence of the Eurozone crisis and the COVID-19 pandemic required a dramatic adjustment of the budget, leading to punctuations. This is precisely what was theorised by the DMCPP and the PET. Periods of mounting external pressure represent a trigger for noteworthy changes disruptive of a long-lasting path of incremental transformations. Traditionally, Italian governments have always been faced with the deterioration of public accounts, thus putting off the necessary budget adjustments (Verzichelli 1999): a custom that continues despite political stances and institutional metamorphoses, as already confirmed. Delaying the required measures to fix national accounts results in the process of error accumulation highlighted by the literature, which eventually collides with the need for substantial transformations. This is precisely why real GDP growth has an irrelevant impact on the size and direction of budget changes while the two crises of the past three decades cause punctuations. All in all, the quantitative analysis of this chapter uncovered which systemic frictions are affecting the budget policy outcome in Italy. Specifically, it identifies which of them determine the size of budget modifications but, even more importantly, which ones explain the likelihood of undergoing massive cuts, substantial increases or tiny adjustments. One of the purposes of this book is to determine whether the Italian budget policy fits the PET. The study carried out so far confirms that it does. With regard to the factors that drive the course of Italian budget policy, I wondered whether radical transformations have been triggered by specific events that captured the attention of decision-makers or whether they occurred because of a long reforming process that has changed the policy paradigm and the overall purpose of the budget policy. Findings suggest that the accumulation of pressure after the outbreak of the Eurozone crisis and of the pandemic had a more substantial role than the recurring reforms of the budgetary process. Nevertheless, as reviewed in Chap. 3, the mix of reforms and normative stretching has considerably altered the rules of the

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game overlooking the development of the budget. This issue needs further insight to fully understand its impact on the Italian budget policy. The next chapters aim precisely to interpret the role and nature—competitive versus cooperative—of the veto players and the inner characteristics of the budget packages (henceforth referred to as manovra).

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Epp, Derek A., John Lovett, and Frank R. Baumgartner. 2014. Partisan Priorities and Public Budgeting. Political Research Quarterly 67 (4): 864–878.  Green-Pedersen, Christoffer, and Stefaan Walgrave. 2014. Agenda Setting, Policies, and Political Systems: A Comparative Approach. Chicago, IL: University of Chicago Press. Groeneveld, Richard A. 1998. A Class of Quantile Measures for Kurtosis. The American Statistician 52 (4): 325–329. Hallerberg, Mark. 2004. Domestic Budgets in a United Europe: Fiscal Governance from the End of Bretton Woods to EMU. Ithaca: Cornell University Press. Hosking, Jonathan R.M. 1990. L-Moments: Analysis and Estimation of Distributions Using Linear Combinations of Order Statistics. Journal of the Royal Statistical Society: Series B (Methodological) 52 (1): 105–124. John, Peter, and Shaun Bevan. 2012. What Are Policy Punctuations? Large Changes in the Legislative Agenda of the UK Government, 1911–2008. Policy Studies Journal 40 (1): 89–108.  Jones, Bryan D., Tracy Sulkin, and Heather A. Larsen. 2003. Policy Punctuations in American Political Institutions. American Political Science Review 97 (1): 151–169.  Lienert, Ian. 2005. Who Controls the Budget: The Legislature or the Executive? SSRN Scholarly Paper 887984. Rochester, NY: Social Science Research Network. Mair, Peter. 2011. Bini Smaghi vs. the Parties: Representative Government and Institutional Constraints. EUI Working Papers (22). Martin, Lanny W., and Georg Vanberg. 2013. Multiparty Government, Fiscal Institutions, and Public Spending. The Journal of Politics 75 (4): 953–967.  May, Peter J., and Ashley E. Jochim. 2013. Policy Regime Perspectives: Policies, Politics, and Governing. Policy Studies Journal 41 (3): 426–452.  Meyers, Roy T. 2001. Will the US Congress’s ‘Power of the Purse’ Become Unexceptional? Annual meeting of the American Political Science Association, San Francisco, CA. Moury, Catherine, and Adam Standring. 2017. ‘Going beyond the Troika’: Power and Discourse in Portuguese Austerity Politics. European Journal of Political Research 56 (3): 660–679.  Perotti, Roberto, and Yianos Kontopoulos. 2002. Fragmented Fiscal Policy. Journal of Public Economics 86 (2): 191–222.  Persson, Torsten, Gerard Roland, and Guido Tabellini. 2007. Electoral Rules and Government Spending in Parliamentary Democracies. Quarterly Journal of Political Science 2 (2): 155–188.  Poterba, James M. 1994. State Responses to Fiscal Crises: The Effects of Budgetary Institutions and Politics. Journal of Political Economy 102 (4): 799–821. Primo, David M. 2006. Stop Us Before We Spend Again: Institutional Constraints on Government Spending. Economics & Politics 18 (3): 269–312. 

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Quaglia, Lucia, and Claudio M. Radaelli. 2007. Italian Politics and the European Union: A Tale of Two Research Designs. West European Politics 30 (4): 924–943.  Robinson, Scott E., Floun’say Caver, Kenneth J. Meier, and Laurence J. O’Toole. 2007. Explaining Policy Punctuations: Bureaucratization and Budget Change. American Journal of Political Science 51 (1): 140–150. Robinson, Scott E., Carla M.  Flink, and Chad M.  King. 2014. Organizational History and Budgetary Punctuation. Journal of Public Administration Research and Theory 24 (2): 459–471.  Rose, Shanna. 2006. Do Fiscal Rules Dampen the Political Business Cycle? Public Choice 128 (3–4): 407–431.  Roubini, Nouriel, and Jeffrey Sachs. 1989a. Government Spending and Budget Deficits in the Industrial Countries. Economic Policy 4 (8): 100–132.  Roubini, Nouriel, and Jeffrey D.  Sachs. 1989b. Political and Economic Determinants of Budget Deficits in the Industrial Democracies. European Economic Review 33 (5): 903–933.  Russo, Federico. 2015. Two Steps Forward and One Step Back: The Majority Principle in the Italian Parliament since 1994. Contemporary Italian Politics 7 (1): 27–41.  Russo, Federico, and Luca Verzichelli. 2016. Government Ideology and Party Priorities: The Determinants of Public Spending Changes in Italy. Italian Political Science Review/Rivista Italiana Di Scienza Politica 46 (3): 269–290. Schick, Allen. 2002. Can National Legislatures Regain an Effective Voice in Budget Policy? OECD Journal on Budgeting 1 (3): 15–42. ———. 2008. The Federal Budget: Politics, Policy, Process. Washington DC: Brookings Institution Press. Sebők, Miklós, and Tamás Berki. 2018. Punctuated Equilibrium in Democracy and Autocracy: An Analysis of Hungarian Budgeting between 1868 and 2013. European Political Science Review 10 (4): 589–611.  Shapiro, Samuel S., and Martin B. Wilk. 1965. An Analysis of Variance Test for Normality (Complete Samples). Biometrika 52 (3–4): 591–611. Stapenhurst, Rick. 2008. Legislative Oversight and Budgeting: A World Perspective. Washington, DC: World Bank Publications. Strøm, Kaare, Wolfgang C. Müller, and Torbjörn Bergman. 2006. Delegation and Accountability in Parliamentary Democracies. Oxford: Oxford University Press. Tsebelis, George. 1995. Decision Making in Political Systems: Veto Players in Presidentialism, Parliamentarism, Multicameralism and Multipartyism. British Journal of Political Science 25 (3): 289–325. Verzichelli, Luca. 1999. La politica di bilancio. Bologna: Il Mulino. von Hagen, Jürgen. 1992. Fiscal Arrangements in a Monetary Union: Evidence from the US. In D.E. Fair and C. De Boissieu (eds), Fiscal Policy, Taxation and the Financial System in an Increasingly Integrated Europe. Dordrecht: Springer Netherlands.

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von Hagen, Jürgen, and Ian J. Harden. 1995. Budget Processes and Commitment to Fiscal Discipline. European Economic Review 39 (3): 771–779. Weaver, Kent R., and Bert A. Rockman. 1993. Do Institutions Matter? Government Capabilities in the United States and Abroad. Washington, DC: Brookings Institution Press. Weingast, Barry R., Kenneth A.  Shepsle, and Christopher Johnsen. 1981. The Political Economy of Benefits and Costs: A Neoclassical Approach to Distributive Politics. Journal of Political Economy 89 (4): 642–664.  Wildavsky, Aaron B. 1992. The New Politics of the Budgetary Process. 2nd ed. Boston: Little, Brown. Wildavsky, Aaron B., and Naomi Caiden. 2001. The New Politics of the Budgetary Process. New York: Addison Wesley/Longman.

CHAPTER 6

To Change or Not to Change: Governments’ Spending Intentions

6.1   Introduction At the end of the year, after months of discussion and revisions—first within the government, then between the government and European institutions and finally within the parliamentary bodies (the Budget Committees and the parliament)—the parliament approves the budget law. Analysis of the difference between two consecutive budget laws, conducted in the previous chapter, is informative for seeing how budget policy changes over time at a general level. Among a number of potential explanatory factors, I identified those that really explain in which conditions one is more likely to witness tiny adjustments (positive or negative), severe curtailments or huge increases. Not surprisingly, we found out that punctuations are driven mostly by the outbreak of a crisis, both the Eurozone crisis and the COVID-19 pandemic, which nevertheless triggered two opposite budgetary paths. Bearing in mind that we studied transformations between two consecutive budget laws, thus between the final moments of the decision-making process, the considerable effect of an exogenous factor is rather straightforward, considering that it affects the whole budgetary cycle and remains in place for a few years. Does this mean that institutional and political factors play no role in Italian budget policy? Of course not. They surely have a significant impact which probably matures at specific moments of

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the budgetary process. To uncover the possible power of factors that seemed negligible in the previous analysis, we need to dig deeper by focusing on different moments of the budgetary decision-making process. Wildavsky taught us that ‘the largest determining factor of the size and content of this year’s budget is the last year’s budget’ (1984: 13). This implies that the legislator decides how to allocate financial resources by simply adjusting expenditure of the previous year, either slightly increasing or reducing funds. In a budgetary process that lasts months, where different actors meanwhile intervene, the incremental outcome suggested by Wildavsky may be both the result of the government’s lack of intention to change the previous year’s budget and the effect of the parliament that changes the government’s proposal. In this chapter we aim to shed light on those factors that encourage the government to implement, or try to implement, its spending preferences before the start of the parliamentary phase. However, even at this preliminary stage some political and institutional variables may act as frictions to change, such as the government’s ideological polarisation and the degree of conflict among coalition partners. These are expected to be counterbalanced by other forces that may ease a considerable reshuffle of spending allocation. As briefly outlined in Chap. 4, some predictors used in Chap. 5 are omitted here (e.g. party system fragmentation and European external constraint) while others are introduced, which pertain mostly to the government’s duration in office. The budget bill here comes in handy, as it contains the government’s initial spending intentions. Basically, while we know that crises are the triggering factors for punctuations, we still do not know if tiny changes are a government’s decision or the consequence of the parliamentary process that altered the budget bill. The focus of this chapter is more specifically on the government and on its intentions with respect to the status quo. More precisely, we will see the government’s behaviour when drawing up the budget bill and understand why certain factors facilitate changes in the allocation of expenditure across budget categories.

6.2   Governments’ Intentions and Spending Reallocation: Hypotheses The budget systematises the policy priorities of the government, which clearly has a leading role in setting the policy agenda. While the government must guarantee the long-term viability of public accounts and act to implement its mandate by realising its electoral pledges through the annual

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appropriation of expenditures, these are tempered by the quantification of decisions collectively agreed upon by a number of decision-makers and stakeholders, each of them adapting his/her own intentions and choices according to the domestic institutional setting, incoming information and the external environment. Using the Budget Bill to Understand Government’s Preferences As policy outputs are mostly hyper-incremental because of frictions, and past legacies largely determine budgetary policy outputs, potential transformations of policy course can be better grasped by investigating spending intentions. We saw that when a government with a different ideological position from its predecessor takes office, the degree of change of the budget decreases. However, we do not know whether the incumbent tried to alter the allocation of expenditure—as one may expect—but failed, or whether it was satisfied with previous spending choices. To understand that, we should know the position of the government with respect to the status quo, that is, its spending intentions. The budget bill fulfils this role, as it mirrors the spending preferences of the executive before the same preferences are altered by the parliamentary process. Basically, it elucidates both on the degree of budgetary changes and on the attempt to move away from the status quo, with implications about the attempt to be responsive to the electorate. As described in Chap. 4, thanks to the twin dataset I developed containing comparable information about the budget bill and the budget law, we can considerably expand our knowledge on the dynamics otherwise neglected if one looks only at annual transformations of the budget law. Specifically, using the two sources of information available and depending on the point in time one chooses, it is possible to conduct different types of analysis (Fig. 6.1). The comparison between the bill and the law highlights divergent mechanisms that take place during the different phases of the policy-­ making process. In Chap. 5, we investigated the relation between the budget law(t–1) and the budget law(t) (C) that shows in particular the impact of contextual and institutional factors on annual budgetary changes. This analysis partly blurs the effect of short-term political factors and does not consider actors’ position with respect to the status quo. The budget bill is a perfect tool to control for these aspects, serving as a proxy of the government’s position and of its spending preferences.

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Fig. 6.1  Types of analysis between budget documents. Source: Cavalieri (2020: 155)

The variation between the law(t–1) and the bill(t) (D), which displays how much the government relies on the spending decisions of the previous budget law when drawing up the new year’s bill, sheds light on the role of the government in charge and allows an interpretation of the distance of policy preference between parties that succeeded in government (Cavalieri 2020). The last type of analysis which is relevant to really understand Italian budgetary policy is the comparison between the budget bill and the budget law of the same year (A),1 which has the merit of holding constant some contextual factors that may impinge on the modifications from one year to another, thus allowing us to unravel the actual decisions on budget adjustments that result from the current legislation.2 This type of modification enlightens us about the balance of power between the government that submits the budget bill to the Chambers and the parliament that discusses and revises it. While this last aspect will be at the core of Chap. 7, we turn now to the focus of this chapter, which is precisely the comparison between the budget bill and the budget law of the year before.

1  The book does not analyse the difference between the budget bill(t–1) and the bill(t) (B) because that kind of comparison could help highlight only specific policy intentions of the government in office, but it has nothing to add about its position related to the status quo or on the balance of power. 2  This avoids potential errors due to different interpretations of the coding scheme used for categorising expenditure, that in some cases caused upheavals interpreted in Appendix B.

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Frictions and Pushes to Expenditure Reallocation Did the government want to change the budgetary policy-path pursuing its spending preferences, or was it satisfied with previous budgetary choices and relied on past spending decisions making only slight adjustments? Once we are able to answer this question, we can understand which actors are responsible for spending decisions and changes. If the government remains in office, one may find a long-term budget plan with little modifications between the previous year’s budget law and the next budget bill. In contrast, if a new government writes the budget bill, one may foresee a substantial shift in the position of the status quo (Zucchini 2011), due to parties’ attempts to be responsive towards the electorate. Because the whole total expenditure is barely changeable and partisan preferences can hardly be translated into public policies, it is more convenient and insightful to look at spending reallocation across budget categories rather than at the percentage change used in the previous chapter. More precisely, here we keep track of the different allocations of expenditure in each budget category, to see how each one swings from the budget law of the previous year to the budget bill of the next one. Taking into account factors already presented in Chap. 5, I attune their potential impact according to the different perspectives of this section that looks at the level of the expenditure’s reallocation. To begin with, we now disregard the role of the parliament, as it does not intervene in the time span considered (e.g. once the parliament approved the budget and it becomes law, it does not step in when the government draws up the budget bill during the new financial year until the very end of the budgetary process). Similarly, the EU intervention has nothing to do with the policy intentions of the government and has a more incisive role at a later stage, that is after the government submits the DBP to the Commission and Eurogroup in mid-October. Instead, the characteristics of the government, at the core of this chapter, are extremely relevant. Following the veto-point theory that we reviewed in Chap. 5, we know that more veto and ideologically distant players intensified the efforts to reach an agreement over a point which satisfied everybody (Tsebelis 1999). We can imagine this to be true both when changing the budget law and when the government has to draw up the new budget bill. Thus, in the case of a polarised executive, it is likely that the government would not try to considerably alter the allocation of expenditure of the previous year.

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Polarisation Hypothesis Higher ideological distance within the governing coalition reduces the level of spending reallocation. As abundantly reviewed in the previous chapters, the Italian budgetary process went through several modifications that aimed to improve the role of the executive vis-à-vis the parliament and to increase the government’s capacity to steer the budget policy according to its spending preferences. Among others, the ZBB, finally introduced in 2012, granted the government wider leeway specifically in the phase of planning, as it allows the government to draw up the budget each year starting from zero, without being obligated to maintain the spending appropriations of the previous year. Once again, this improvement reduces the force of frictions that prevent the change while raising the possibility of considerably adjusting the budget. Centralisation Hypothesis Higher centralisation of the budget process increases the level of spending reallocation. It is already clear that a crisis represents such a huge disturbance to the usual decision-making process that it dramatically alters the size of budget changes. In addition, we can expect that the same shock causes a substantial reshuffle of expenditure across budget categories, necessary specifically to face the crisis. That means that, according to the event that triggered the crisis, the government may increase expenditure on the corresponding policy sector to grant it more resources to deal with the emergency. This could be the case, for instance, of the huge upsurge of expenditure in spending categories such as ‘Medical products, appliances and equipment’ in the budget bill for 2021 and 2022 (growth of 1550 and 334 per cent, respectively) or ‘Hospital services’ in the bill for 2022 (raised by 376 per cent) (see Appendix B, Table B.2), precisely during the COVID-19 crisis. Crisis Hypothesis Periods of crisis increase the level of spending reallocation. As already seen, these factors act as frictions to budgetary changes with a counterbalancing effect between some of them. Recently, departing from a fundamental tradition about the effect of the electoral cycle on

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policy changes, scholars of the PE (Lam and Chan 2015; Li and Feiock 2020) argued that policy punctuations are not just a function of cognitive or institutional frictions but are also conditional on changing electoral incentives. Taking for granted that policy-makers face cognitive and institutional frictions, policy punctuations may be determined by the presence or absence of such electoral incentives. Precisely, in different moments of the electoral cycle, politicians may allocate the attention unevenly and focus on a single (or very few) issue(s), thus causing the mechanism of increasing pressure that eventually brings about policy punctuations. I neglected this aspect in the study of yearly budgetary changes, as the effect of electoral competition for the legislative branch does not seem to be actually meaningful in increasing the likelihood of budget punctuations (Li and Feiock 2020) and because institutional arrangements designed to enforce the budget balance seem to erase the fiscal effect of elections (Alt and Rose 20073). We also need to bear in mind that the type of government has a crucial intervening effect on the electoral incentives to manipulate the budget. As an example, the fact that multi-party coalitions in consensus democracies are quasi-unrelated to electoral results disconnects them from the temptation and necessity to manipulate the economy for short-term electoral gains, whereas governments seem to care more about electoral returns of their policies when they fear for their survival in office (Hobolt and Klemmensen 2008). In addition, the electoral-cycle effect seems to disappear in the case of the adoption of procedural reforms that prevent spending increases, and parliamentary regimes where governments can discretionarily call early elections (Kayser 2005) would make no difference. In fact, considering the reduced leeway of governments to expand the total size of the budget, the electoral cycle may particularly affect the allocation of expenditure across budget categories. Incidentally, some spending categories are more subject to electorally motivated spending, such as economic and social issues (Enkelmann and Leibrecht 2013). However, things are not that clear even looking at the allocation of expenditure. While the US case suggests that newly elected governments are able to modify the allocation of expenditure across budget authorisations thanks to the ‘honeymoon’ period (Krehbiel 1998), a comparative work on seventy-one democracies warned that newly elected 3  This study focuses only on American states and is still untested for parliamentary systems, where the government is indirectly elected.

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governments need a few years before being able to alter the budget composition (Brender and Drazen 2013). Taking into account findings of the previous chapter that confirm this second stance, at least when we deal with the magnitude of budget changes, we may expect that incumbents have to wait a few years before changing the allocation of expenditure. However, we also need to remember the particular characteristics of the Italian case, where many governments have been appointed during the legislative term and no one, in the history of the Italian republic, has succeeded in carrying out the whole legislative term for the expected duration of five years. This could partly disconnect Italian governments from the electoral-cycle effect, although a similar mechanism may be in place simply considering the fact of being a newly appointed government, thus not necessarily related with the electoral cycle. Newly Appointed Governments Hypothesis Newly appointed governments decrease the level of spending reallocation. The analysis of annual changes between two consecutive budget laws clearly obfuscates some aspects of the policy-making process and blurs the dynamics of some specific moments of the decision-making process. Drawing up a new budget bill that will later be discussed and modified and finally approved as law is a crucial step for a government and marks the actual beginning of the budgetary process. Each year a government decides how to allocate funds across budget categories and which of them deserve to be implemented or cut, according to contextual and political-­ institutional factors. Intuitively, the choice to fund a specific programme implies that another one or more are not funded. Investigating how much funding a programme receives compared to others reveals how important and overriding that programme is for a government.

6.3  Explaining the Transformativeness of the Budget Bill Annual changes are affected by economic and social conditions. A well-­ fitting example is represented by welfare spending which tends to grow as unemployment rises, with substantial trade-offs in the allocation of expenditure for other budget authorisations (Adolph et  al. 2020). Broadly

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speaking, costly policy issues and redistributive policies seem to be highly responsive to the economic and fiscal conditions of the state (Annesley et  al. 2014; Annesley and Gains 2013). Apparently, it is inaccurate and deceptive to consider yearly changes as a sole function of a deliberate choice. Instead, comparing the law with the bill of the following year uncovers the intentional decisions on budget adjustments, while also considering the potential alteration of the external context.4 To conduct this analysis, we need a different dependent variable, able to grasp the difference in the allocation of expenditure in budget categories. Trading Off Preferences and Money Public expenditure has been studied mostly by looking at the overall size of the budget or investigating only single budget categories on their own. These approaches overlook a crucial aspect of the policy-making process, namely its competitive nature (Philips et al. 2016; Lipsmeyer et al. 2019). That means that the choice to fund a specific programme implies that another one or more are not funded. Trade-off is crucial and unavoidable, because of the interdependence of decisions and because the budget, although it is not a zero-sum game but allows overrunning, is certainly constrained by the situation of national accounts and the supranational limitations that impose respect for economic parameters. To study this effect, I use an index already developed to measure this type of variation (Cavalieri 2020; Cavalieri et al. 2018) which assesses the transformative nature of the budget between the law of a certain year and the bill of the following one. More precisely, I first calculate the proportion of each budget item of the law on the total expenditure of the law itself, which allows us to take control of the total size of the budget while focusing only on the budget composition. Then, I calculate the proportion of the same budget item of the bill for the following year on the total expenditure of the bill. Next, I compute the difference between proportions for each spending item and measure the percentage change score. This gives a sense of how much each budget category moves away from the original document. Values are finally squared and summed together to obtain an annual value, later divided for the total number of spending

4  However, for the sake of knowledge, I also look at this aspect and developed a model presented in Appendix, Table A.16. Summary statistics for the dependent variable are presented in Table A.15.

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domains.5 In mathematical terms, we can express the index with the following formula:

( ) (



)

2

∑  p xi ( t ) − p xi ( t −1)   Index of transformativeness =  N

where: p(xi(t)) is the proportion of expenditure for the budget function i at time t; p(xi(t  −  1)) is the proportion of expenditure for the budget function i at time t − 1; The index has a twofold merit. On the one hand, using squared values, it prevents negative modifications from resetting positive ones, thus really considering the degree of change between the two documents. On the other hand, it allows us to assess the transformative nature of the budget, focusing on the dispersion of changes, and considers widespread adjustments across several categories as having a non-transformative nature.6 5  As the number of budget categories changed concurrently with the adoption of the COFOG coding scheme in 1998, the denominator to calculate the index is different between the period 1992–1997 and 1998–2021. Because the budget categories of the first time span are comparable with macro-categories of the more recent period, I use 10 (the number of macro-categories) to calculate the index in the period 1998–2021. However, it is possible to use the total number of micro-categories as denominator (66) as done by Cavalieri (2020). 6  Other indexes can be used to measure the difference between the law and the bill, such as the Duncan dissimilarity index (Duncan and Duncan 1955) and the measure of budget distance developed by Tsebelis and Chang (2004). The former is a measure of dissimilarity between two distributions, whereas the latter assesses the change in the structure of the budget, represented as the distance between points in an n-dimensional Euclidean space (Tsebelis and Chang 2004: 454). Despite the diffusion and reliability of these measures, here I stick with the index of transformativeness already used in a previous study to estimate the divergence between the budget bill and the budget law in the Italian case (Cavalieri 2020; Cavalieri et al. 2018). It appears more intuitive and also accounts for the number of budget categories. To increase the reader’s confidence in the index, I evaluate the distance between documents using the other two measures as well. Correlation matrixes confirm the reliability of the index of transformativeness, which highly correlates with both the Duncan dissimilarity index and the index of budget distance (correlation between index of transformativeness and Duncan dissimilarity index: 0.79, statistically significant with p-value < 0.001; correlation between index of transformativeness and index of budget distance: 0.91, statistically significant with p-value < 0.001).

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The degree of transformativeness takes on a wide range of values across years, from the minimum which is almost 0 to the maximum that reaches 15.47 (Appendix, Table A.15).7 To have a clearer overview, we can place each annual budget on a plot (Fig. 6.2) that shows the level of transformativeness (x-axis) and the percentage change of the total budget (y-axis).

21 95

Percentage change (total budget)

10

22

5

0

−5

19 1820 14 00 13 12 08 17 01 98 04 06 0503 97 10 11 16 07

15

96

09

−10

94

0

2

4

Index of transformativeness

6

Fig. 6.2  Characteristics of the budgets (law(t–1)/bill(t)) (1993–2022). Note: years with diamons indicate budget retrenchment, meaning a negative percentage change between the total spending of the budget bill(t) and the budget law(t–1). Grey dashed lines are placed at the median value of both index of transformativeness and percentage change. The year 2002 has been removed from the plot, as it takes on an extreme value for transformativeness and would have made the figure impossible to read (for details about that year, see Appendix, Table A.14) 7  See Table A.14 in the Appendix for the index of transformativeness for each year, between the budget law(t–1) and the budget bill(t) (analysed in this chapter) and between the budget bill(t) and the budget law(t) (analysed in Chap. 7) and for summary statistics of both variables. The same table also contains the percentage change of the total budget for each year.

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At a first sight, it is instantly visible that there is neither a prevalent dynamic concerning how the government changed the total expenditure and the allocation of expenditure, nor is there a robust relationship between the two variables (p-value = 0.01). However, at a general level, most of the bills did not dramatically reallocate funds across budget categories compared to the previous year’s law, and also did not considerably increase or decrease the percentage change of the total budget, as many of the budgets are concentrated around low values. As is evident, some governments left almost totally unchanged the allocation of expenditure of the previous year when drawing up the new budget bill, while others tried to substantially reallocate expenditure. This is, for example, the case of the budget for 2002 (the first budget bill of the Berlusconi II government), 2009 (the first budget bill of Berlusconi IV), 2015 (the first budget of Renzi) and 2021 (the second budget bill of Conte II). What explains this difference in the degree of transformativeness? Each year of course has some interesting features that deserve an explanation. There is almost no doubt about the fact that the budget for 2021 displays one of the highest values, as the government needs to reallocate funds because of the COVID-19 in progress. Similarly, after one year, the new technocratic government headed by Draghi continued to considerably increase the amount of funds for the 2022 budget. As reviewed in the previous chapters, this should not be a surprise in spite of the technocratic nature of the government. Draghi was appointed not only to face the pandemic crisis and manage the vaccination campaign but also, and most importantly, to manage the huge amount of funds available and to determine which long-term policies to carry out. Interestingly, the level of transformativeness of that manovra is not extremely high, indicating that the government almost followed the previous year’s pattern of expenditure. This was foreseeable, though, as in the last two years analysed, the European Union had already indicated to Member States the policy priorities to implement. In 2009 Berlusconi returned to office after winning the general elections with the promise of relaunching a ‘neo-liberal economic revolution’ based on the reduction of the public sector. Counting on a strong and very cohesive majority of three parties, the government actually tried to modify the budget, considerably changing the allocation of expenditure from the previous budget law issued by the centre-left government of Prodi, with the slogan ‘fewer costs, more freedom, more development’ (DPEF 2009–2013, pp. VI–VII). In February 2014, Renzi’s takeover, after only one year of the government of Letta, who was governing with a surplus coalition of five parties (the same grand coalition that supported

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the technocratic Monti government), was driven by his indisputable victory (67.6 per cent) in the primary election for the PD leadership (8 December 2013). In such a context of renewed optimism for the improving economic situation—2014 was indeed the first year of a positive sign of GDP growth after the Great Recession—the PD (the main party in office) rose to its highest consensus ever (40.8 per cent), gained at the European elections (25 May). Renzi, perceived as ‘the new’ by a large part of Italians (Segatti et  al. 2015), planned a long-term budgetary action advertised in the DEF 2016 and visible from the magnitude of adjustments foreseen by each of the following manovre, whose index of transformation gradually decreased (see Appendix, Table A.14). The index of transformativeness is gradually lower from 2015 to 2017. (Trying to) Transform or Not Transform: Recurring Evidence However, despite the importance of each single annual manovra, we are concerned with finding those factors which do not limit their explanatory power to a unique budget cycle but have a statistical significance and generalisability. Why do some governments decide to propose a budget bill extremely similar to the budget law of the previous years and why do others choose to reallocate funds and try to implement divergent spending priorities? Is it something related to the occurrence of external events that puts pressure on the government to change the allocation of expenditure, or do institutional and political factors act as frictions and reduce the possibility for the government to even try to transform the budget? We answer these questions and test the hypotheses using the same predictors as in Chap. 5, adding a variable to measure the effect of being a newly appointed government or not. More precisely, those governments that drew up their first budget bill (i.e. without issuing the previous budget law) have been assigned value 1, while others take on value 0.8 8  Each time there is a change in the government composition (e.g., with the inclusion of new parties or resignation of others), I consider it a new government, as also identified by the formal denomination of the Italian government. This means that even when the same Prime Minister continues to hold office, it may be the first budget bill issued by that government, as in the case of D’Alema II (1999), Berlusconi III (2005) and Conte II (2019). Similarly, those governments with the same majority but a different Prime Minister have been assigned value 1, because the Prime Minister himself is likely to have a notable role in deciding about the budget allocation. This is the case of Amato II (2000) and Renzi (2014). Overall, 63.3 per cent are first bills of a particular government.

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However, it seems reasonable to expect that there is also a time-effect on the reallocation of expenditure. As time passes and a government remains in office, it may gain room to manoeuvre for adjusting the allocation of expenditure according to its preference. For this reason, I also use the number of days in office as a control variable, hypothesising that more days in office increases the level of spending reallocation. The control variables used in the previous chapter are kept as well. To recall, the degree of coalitional conflict on the budget is expected to act as friction, thus hindering the reallocation of expenditure because of the difficulty of agreeing on the policies of implementation. In contrast to the hypothesised effect of the duration of the government, there may instead be an impact of the ideological alternation between governments. If it is true that even incumbents with a different ideological position than the previous one need time to adjust the total size of the budget, as we have seen comparing annual budget laws, it is logical to think that a new government with an opposite ideological stance with respect to its predecessor would still try to reallocate expenditure across budget categories. Similarly, as technocratic governments have been always appointed to implement bold budget decisions, I expect that the index of transformativeness increases when technocratic governments are in office. The economic context is taken into account as well, measured through GDP growth from one year to another, which probably has a positive effect on spending reallocation, as when the economic conditions improve, the government may gain space to adjust the budget as it prefers. The model is described by the formula:



Transformativeness of the new budget bill = β 0 constant + β1 government ideological polarisation + β 2 budgetary process centralisation + β 3 crisis + β 4 electoral cycle + β 5 days in office + β 6 conflict on the budget + β 7 technocratic government + β8 ideological alternation + β 9 GDP growth + ε



As the dependent variable we are now using is completely different from that in Chap. 5, and meets the assumptions to run an OLS regression analysis, I use this statistical model to understand the impact of the

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Table 6.1  OLS regression model Transformativeness law(t–1)/bill(t) Constant Government ideological polarisation Budgetary process centralisation Crisis Newly appointed government Days in office Conflict over the budget Technocratic government Partial ideological alternation Complete ideological alternation GDP growth

−13.11 (6.77)† 0.11 (0.66) 0.21 (0.16) −0.15 (1.57) 5.71 (1.59)*** 0.01 (0.00)** −0.14 (0.06)* 2.23 (1.99) 5.23 (2.54)† 2.67 (2.26) 0.13 (0.27)

Note: statistical significance with p-value < 0.1 (†), 0.05 (*), 0.01 (**), 0.001 (***)

predictors on the degree of transformativeness from the budget law to the budget bill of the next year (Table 6.1).9 Regression results provide an interesting explanation for the level of expenditure reallocation across budget categories from the budget law to the budget bill of the following year. The dependent variable signals the attempt of the government to change the allotment of funds and can be used as a proxy for the distance of government’s preferences from the status quo, represented by the budget law. Looking at the hypotheses, the centralisation and polarisation ones are not actually significant and only the former goes in the expected direction. To recall, we expected that higher ideological distance among governing partners would constitute a strong friction to the capability of the government to alter the allocation of funds, because of the difficulty of finding agreement, particularly about thorny policies. In fact, inconsistent preferences among governing partners seem to increase the potential transformativeness of the budget. From a veto-players perspective, that may make a little sense, as we are used to thinking that a few, ideologically close veto players can easily modify the budget thanks to higher congruence. In such a ‘stable’ environment of similar actors’ preferences, ‘policy making fluctuates within a small range’ (Breunig 2006: 1074). Instead, here we are presented with a situation in which a system of governing members’ 9  I run the same model with the percentage change of the total budget as a dependent variable (see Appendix, Table A.16).

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divergent policy positions brings about an attempt at substantial modification of the status quo. Ultimately, this suggests that incongruent veto players, rather than simply blocking budget changes, actually extend the bargaining over the composition of the budget (Breunig 2011). This is the opposite mechanism that manifests itself when the degree of coalitional conflict about the budget rises. As the negative coefficient of this predictor teaches us, the more disputes within the government about the budget, the less the level of transformativeness. Predictably, coalitional conflicts are a pure friction to change and provide a powerful explanation. The centralisation hypothesis suggested instead that the process of reform that granted the government more power to steer the budgetary process vis-à-vis the parliament would decrease frictions, making it easier to implement the government’s spending preference. However, as mentioned, neither hypothesis has a statistically relevant effect. The same happens for the crisis hypothesis, which incidentally has the opposite effect to what we expected. Specifically, when an external event brings about the need for an immediate response, policy-makers do not haggle that much trying to adjust the budget bill, whose level of transformativeness decreases in case of crisis. This recalls the budget issued in 1996, the fifth consecutive year in which the parliament intervened in the budget bill, cutting the original plan of the government. As highlighted in Chaps. 3 and 5, the phase of convergence (1992–1997) required governments that came in succession to make demanding economic efforts and budget restraints with an eye towards entrance into the monetary union. Admittedly, all of the coalitions of that period, regardless of their ideological position, supported even a harsh budget restraint with the purpose of ensuring public account rebalancing towards the EMU (Verzichelli 1999). 1996 represents the end of this phase of spending containment, although the slowdown of economic growth, which proved to be much lower than the forecasts, made it difficult to fulfil the conditions imposed by the Maastricht Treaty. Whereas Italian leaders hoped to obtain some flexibility from their partners, in July the European commissioner Mario Monti warned that with such a weak budget plan, Italy would not be permitted to join the single currency with the first group of countries. What is crucial to point out here, supporting the fact that periods of crisis are associated with a low degree of budget transformativeness, is that the most relevant and long-lasting shocks that Italy experienced are times of economic distress. Notably, retrenchments encourage governments to distribute cuts evenly among multiple spending categories while loudly

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advertising that curtailments would affect everyone equally (Savage 2001). Periods of austerity are indeed associated mostly with across-the-board cuts, since the budget-holders, inherently loss-averse (Brumby 2007; Kahneman and Tversky 1979), tend to appreciate the baseline budget they already hold and to protect the status quo (Breunig 2011). Adopting this shared pain strategy, budget-holders can avoid the countermobilisation of interest-holders affected by cutbacks (Clarke and Newman 2012; Jõgiste et al. 2012). In fact, the Prodi I government proposed almost no change to the budget law of the previous year (see Table A.14  in the Appendix), with a few mainly incremental cuts. However, the fiscal targets for the 1997 budget suddenly became more demanding when the Italian government realised that the Spanish one was going to meet the criteria to enter the EMU from the very beginning and with no request for relaxation of the parameters to join the Euro area. Thus, in September the executive had no choice but to adopt another contractionary fiscal package. The situation of crisis in this case amplified the demand for spending reduction to such an extent that the government was not able to implement a blame-avoidance strategy, being constrained to cut massively to achieve its goal. In a case like that, requiring immediate action, the time for the bargaining process inevitably shrank because of a logic of urgency. The parliamentary session notably impacted the budget, and cutbacks eventually concerned only two spending functions, most of all ‘Transport & Communication’ and ‘Agriculture & Environment’ (Cavalieri et  al. 2018). The government chose to focus on those budget functions that were more controllable, meaning that their costs were not determined by compulsory obligations, and had low priority for all of the actors involved (see Padgett 1980, 1981). After the parliamentary session, the budget ended up with a much higher degree of transformativeness than planned (see Table A.14  in the Appendix). It seems that, broadly speaking, the external economic conditions do not matter when comparing the budget law and the budget bill of the following year. In fact, GDP growth goes in the same direction, suggesting that even in the case of improving economic conditions, the government is not incentivised to alter budget allocations. The expectations added in this chapter about the potential impact of the newly appointed government are instead verified and the new variables are statistically meaningful. Among others, the fact of outlining the budget bill for the first time and the number of days in office are the most explanatory factors of the degree of transformativeness of the budget bill

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with respect to the budget law. As for the first variable, the sign of the coefficient warns that we were expecting the opposite effect compared to what happens in reality. To be clear, drawing up the budget bill for the first time (meaning that the same government did not issue the previous budget law) increases the index of transformativeness on average by 5.71 points. At the same time, being in office for a longer period increases the budget transformativeness on average by a few points, as predicted. These two results highlight two interesting and opposite effects. On the one hand, governments that engage with their first budget bill tend to modify what was approved in the previous budget law. On the other hand, they also continue to change the allocation of the budget as time passes by and, even more, they increasingly alter the allocation of expenditure they themselves choose. The first aspect is probably linked with the last statistically significant predictor, that is, the partial ideological shift of the government. The regression model results show that when there is a partial reshuffle of the government composition, the level of transformativeness of the budget bill significantly increases, with respect to ideological continuity of governments, which basically means that the same government that approved the budget law is also deciding about the successive budget bill. Other independent variables do not have a predictive power on the reallocation of expenditure across budget categories.

6.4  Discussion Although the analysis of yearly budgetary changes is fundamental to test the PET in the Italian case and to verify whether the budget policy obeys the same dynamics of stability and change that happen in other countries, that kind of analysis does not give us a real comprehension of the budgetary policy and process. The final budget law that is approved at the end of the financial year is in fact, despite its extreme relevance, just a piece of a broader puzzle that involves several decisional phases and actors. Among the many components of the budgetary process, the government is surely one of the most important. If it is correct to say that many factors constrain its decisional space, as we saw in Chap. 5 studying annual budgetary changes, it is also true that the government still retains the power to change the allocation of funds across budget categories. Months before the discussion of the budget in parliament, the government is asked to write the budget bill, where it can alter the allotment of financial resources. In fact, in recent years it has even amplified its power

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to do so thanks to the implementation of the ZBB, which allows the government to design the budget starting each year from scratch instead of being forced to rest on the previous budget law, thus improving its planning capacities. To capture this aspect, we have adopted a different perspective with respect to that of Chap. 5, and compared the budget law with the subsequent budget bill. Basically, we look for those factors that facilitate the government in autonomously deciding which spending policies to implement, or at least to try to implement, before the start of the parliamentary phase. I hypothesised that some political and institutional variables, such as the government’s ideological polarisation and the degree of conflict among coalition partners, act as frictions even in this preliminary moment of the budgetary decision-making process. Other variables were expected to incentivise a considerable reshuffle of spending allocation after the concentration of pressure following a crisis. The number of days in office and the fact of designing the budget bill after a different government that issued the previous budget law are among the few really powerful explanations for the degree of transformativeness. A learning process seems to be in place, which apparently encourages governments that stay in office for a longer time span to increasingly change the allocation of expenditure across budget categories, leading us to imagine a long-term budgetary plan. At the same time, newly appointed governments will try as much as possible to reshuffle the allotment of resources, pursuing the implementation of their spending preferences. This is rather intuitive and has been facilitated, as indicated, by a series of reforms of the budgetary process implemented over the past few years, enhancing the role of the pivotal actors (Verzichelli 1999; Stolfi 2010; Di Mascio et al. 2013) (e.g. the keynote speaker of the majority, the Presidents of the two Houses of the parliament and the President of the Budget Committee). Indeed, scholars have argued about a shift that has already happened—of normative authority in the hands of the executive (Bergonzini 2014)—and it seems that governments, at least newly appointed ones, try to execute their mandate through the budget by allocating funds to their spending preferences. Read together with results from the previous chapter—which told us about the lower possibility of producing radical change as soon as a government takes office—it appears that this may be a worthless effort which is later blocked by institutional frictions. However, we were trying, precisely, to explain the attempt of the government, and its position with respect to the status quo. Thus, we have

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further confirmation about this endeavour of the government from the identified effect of its partial ideological alternation. While it is interesting to note that a total ideological change of the government does not affect the reallocation of expenditure compared to ideologically close coalitions, a partial ideological reshuffle of the majority does affect the degree of transformativeness of the budget. When a new party previously not in government decides to form a coalition with incumbents, thus modifying the ideological position of the government, the new member has apparently much to say on the budget law issued by the government it was not part of and will attempt to restructure the new budget bill. Again, in light of the findings of the previous chapter, demonstrating that the presence of parties previously in office is a real limit for radical modifications, we now understand that parties that join the coalition that decided the previous budget seek to alter the new budget bill. However, this variation is extremely difficult to implement later, probably as a consequence of the struggle of those parties that were already in office that want to protect their previous choices. In fact, parties that join the coalition and parties that were already in office find themselves in two different points compared to the status quo: the former are more distanced and the latter are closer, as they were the ones setting the status quo through the previous budget law. All things considered, those that enter the coalition will try to bring the status quo closer to their preferences while the others will struggle to maintain the current, despite being in the government together. Frictions do not lose their power even in these initial phases of the budgetary decision-making process. Although those that we expected in the previous analysis to have a crucial impact do not hold here, other types of frictions hinder the capability of the government to design its preferred budget bill. Among others, the most relevant friction is the degree of coalitional conflict about the budget. Disputes to decide about the distribution of funds across budget categories are not a new story in Italy. Governments collapsed for this reason, as was the case of the Berlusconi I government. The drawing up and approval of the budget became a battleground even for the ideologically aligned parties of that coalition, which did not succeed in finding a compromise on either the essential spending figures or the policies for implementation. During the approval of the budget after a fierce confrontation between FI and LN that lasted throughout the policy formulation phase (Verzichelli 1999), the government was forced to resign. Although in completely different domestic circumstances and an extremely hectic international context, the Berlusconi IV

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government experienced a comparable situation where internal disputes characterised all of the budget sessions, with the Minister of Economy Tremonti also clashing with Berlusconi himself: a situation that, along with other factors, eventually led to the collapse of the government. In the same way, left-wing coalitions found in the budget a breeding ground where several conflicts emerged. The Prodi I government had to tackle the minor parties of the coalition, particularly the PRC, to accomplish the approval of the 1997 budget. Overall, drifting apart from the status quo, agreement on the budget matters more than the number of veto points in the executive or other institutional frictions. The study conducted in this chapter adds new pieces of information to the comprehension of the Italian budgetary process and policy. The analysis of the transformative nature of a new bill in comparison to the previous budget law is highly informative about the position of each veto player with respect to the status quo, which cannot be fully grasped simply by looking at annual changes. As stressed a few years ago by John and Bevan (2012), a crucial point often neglected by studies on policy change and punctuations is precisely the extent of the transformative nature of policy changes themselves, which provides a more fine-grained assessment of the types of small and major adjustments. At the same time, we should not forget that we have dealt with the intentions of the government that on many occasions struggle greatly for protection, particularly when the parliamentary phase begins. We will see how this moment changes the budget bill (i.e. the government’s intentions) in the next chapter.

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CHAPTER 7

The Impact of the Decision-Making Process

7.1   Introduction At this point, there is a last crucial aspect to explain, namely the balance of power between the government and the parliament. The budgetary decision-­making that leads to the issuing of the annual budget law is full of pitfalls for the government that, at least in theory, tries to preserve the spending preference drawn up in the budget bill during the parliament’s discussion and revision phase. On its side, the parliament is an arena where dozens and dozens of politicians attempt to make side adjustments to the allocation of expenditure to reward their own constituency. In this regard, we already know that Italy has a long tradition of micro-sectional adjustments that suddenly enter the budget before its approval because of the irresponsible behaviour of MPs who act out of political expediency during the parliamentary session. In a perfect bicameralism such as the Italian one, this was the norm particularly during the First Republic (1948–1991). Nevertheless, we also saw throughout the book that the Italian budgetary process underwent several reforms with the twofold aim of integrating the developments of the European economic governance within the national budgetary process and of reinforcing the role of the government vis-à-vis the parliament. The budgetary process in Italy is currently determined by the interlacement of the role and prerogatives of these three actors: the government, the European Union (especially by means of the Commission) and the © The Author(s), under exclusive license to Springer Nature Switzerland AG 2023 A. Cavalieri, Italian Budgeting Policy, https://doi.org/10.1007/978-3-031-15447-8_7

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parliament. How they interact obviously determines the characteristics of the budgetary process but also shapes the final budgetary policy outcome. What happens once the government has outlined its spending priorities in the budget bill? Can it protect them against the intervention of the two chambers of the parliament? To what extent is the European Commission able to induce changes to the nationally agreed allocation of expenditure? This chapter aims precisely to uncover which institution must be blamed— or credited—for changes made to the budget bill and to unveil over time variations in the balance of power between the three actors involved, with interesting suggestions for interpreting the consequences of the multilevel governance over national budgetary policy. Once again, the twin dataset with information about the budget bill used in Chap. 6 is crucial to uncovering fundamental aspects of the budgetary decision-making and, assisted by statistical analyses, to understanding whether and how the legislative process shapes the budget outcome.

7.2   Parliament Strength and Spending Reallocation: Hypotheses Years of transformations of the rules controlling the budgetary process, carried out through a mix of reforms and normative stretching, have considerably altered the balance of power between actors. This might impinge on the disposition of veto players operating within the system. In this respect, each year the budget represents a real battleground and the discussion and approval process always shake up and roil Italian politics. What arises during those weeks dictates the final shape of the budget and the allocation of expenditure across spending categories. Naturally, the government’s initial decisions are always modified over these months, as seems normal in any parliamentary democracy. In fact, the executive must confront the representative body and present its decisions to the parliament for approval. In this context European institutions may intervene to remind national actors to respect the supranationally agreed parameters and, in recent years, to also ask for a few corrections on specific policies. The design of the budgetary process closely integrates institutions in a multi-dimensional framework, where the final outcome takes the shape of a complex plot that entrusts each actor with specific tasks and the proper time to intervene on budget previsions. According to the most recent reforms that modified the budget session and further integrated the

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timing of the European Semester within the domestic system, the government draws up the budget bill, including spending decisions and macro-­ economic fiscal targets, alongside a supplementary document with three-year effects on public finance that must be submitted to the parliament by mid-October (see Fig. 3.1 in Chap. 3). After a few months, following the European Commission’s assessment of the Draft Budgetary Plan (DBP), the parliamentary session scrutinises the bill1 and finally leads to approval of the budget, which most of the time comes out from this phase quite altered. While we already recognised who serves as a veto within the broad budget formulation, the character of each must not be taken for granted and might have changed over time. Furthermore, veto players may have an impact on the transformative nature of the budget more than on the size of spending adjustments. Incidentally, what we still miss is an examination of how higher order (for instance constitutional norms or institutional settings), or competing institutional structures (such as the supranational one), interact or stymie veto powers (Breunig 2011: 1084), thus affecting the degree and characteristics of budgetary changes. Consequently, all things considered, who is responsible for changes made to the government’s proposed budget? Comparing the Budget Bill and Law to Understand the Legislative Decision-Making Turning to Fig. 6.1 (Chap. 6), that explains the different types of comparison that can be carried out when studying the budgetary policy, we now proceed with the analysis of the relation A, comparing the budget bill and the budget law of the same year. In the Italian context, this relationship is of considerable interest. The ‘contract model’ (Hallerberg et  al. 2007) that typified the Italian budgetary rules of procedure (see Chap. 2), for a long time, did not grant the government the effective power to drive its mandate with respect to the budget. The parliamentary arrangement for budget governance and management of its multifarious course has long been perceived as one of the main causes for the lack of an adequate and efficient budget policy (Verzichelli 1999: 227). Many transformations of the decision-making process have been implemented over the past years, 1  This occurs according to the Italian rules of procedure, which entail the reading and approval by the V Committee of the Chamber of Deputies and V Committee of the Senate and also of both Chambers.

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which deserve explanation and have not yet been investigated by research. Addressing the variation between the budget bill and the budget law elucidates these processes as well. As in Chap. 6, here I scrutinise the expenditure reallocation across budget categories, without factoring in the potential expansion or reduction of the total size of the budget.2 Inspecting how funds are reallocated after a few months highlights the reasons behind the changing importance of budget programmes that can arise either for political reasons, the external inference of the supranational level or sudden events potentially occurring during the budgetary process. New hypotheses are needed to understand how the usual factors that we learned about in the book may affect this variation. To begin, it is evident that the characteristics of the parliament substantially influence the level of variation between the budget bill and the budget law. The ‘law of 1/n’ (Weingast et  al. 1981) explains the relation between a larger number of decision-makers and the size of the budget, which inflates because of the common inclination of MPs towards universal logrolling. Political actors in parliament, once involved in the budgetary process, tend to increase expenditure to those programmes pledged to their own constituency while trying to distribute the corresponding costs. Broadly speaking, as political parties in parliament mostly seek policy pursuits and vote maximisation (von Beyme 2000; Müller et  al. 1999), we should not consider the budget to be a document used solely by the government to try to execute its agenda. Parties in parliament pursue their own preferences as well and compete among each other to see their stances implemented. In this regard, having the favour of the parliament on the budget bill is necessary for the government to ease its approval without substantial modifications. Clearly, a crucial factor affecting the degree of adjustment of governmental legislation by parliament is precisely the distance between the preferences of the cabinet and those of the parliamentary majority (Pedrazzani and Zucchini 2013). In addition, bills pertaining to many policy dimensions and complex subjects emerge from the parliamentary debate extensively altered. Although scholars who pointed this out did not include the budget laws in their study (Pedrazzani and Zucchini 2013) because of the specific features of that legislation which is characterised by radically different parliamentary dynamics, I find no reason to expect that MPs should behave 2  As carried out in Chap. 6, for the sake of knowledge the percentage change of the size of the total budget is considered and presented in the Appendix (Tables A.14–A.16).

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differently where the budget is concerned. From the perspective of the veto players, actors in parliaments have the power to block the government’s decisions, either by maintaining the status quo or by producing tiny incremental changes, and this power is likely to increase as far as the number of parties in parliament increases, because of the lower likelihood of agreeing with the government’s decisions. Fragmentation Hypothesis Higher number of veto players in parliament increases the level of spending reallocation. The role of the government’s ideological polarisation was supposed to be relevant in the analysis of the variation between the budget law(t–1) and the budget bill(t) (see Chap. 6), as the heterogeneous preferences within the governing coalition would have decreased the ability of the government to pursue its spending goals, and thus to alter the budget of the previous years. Although the hypothesis was correct, the predictor was not statistically meaningful. In order to comprehend the magnitude of variation between the budget bill and the budget law, the degree of ideological polarisation of the government offers an insufficient explanation. Arguably, the government has already reached an agreement between the executive’s members before submitting the bill to the parliament and that agreement is evident for the stances illustrated therein. What the government can do afterwards is ‘simply’ defend the bill from the incursion of other actors. For this reason, I do not consider the ideological polarisation of the government to be an explanatory factor for the degree of transformativeness from the bill to the law. Instead, a notable role may be played by the increased centralisation of the budgetary process and by the broader steering capability of the government during the budget session. According to the improved design, and most of all on the basis of new widespread parliamentary practices, the government now seems to be the real key actor. This can potentially favour the government in its confrontation with the parliament on the final spending figures. Centralisation Hypothesis Higher centralisation of the budget process decreases the level of spending reallocation.

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Whereas in the confrontation between the budget bill and the budget law of the previous year the effect of higher centralisation is positive, meaning that the government can more easily change the budget of the previous year thanks to its additional powers, in this circumstance we should suppose a negative impact, that is, that the government can protect its preferences from transformations. In both cases, despite the opposite effect due to the two different points in time and documents considered, what matters is that the government can achieve its spending goals. As for the European Union, it represents an additional actor with a strong veto power in the overall domestic decision-making process. Although one may argue that the ‘external constraint’ does not affect Italian politicians’ preferences on single budget items, the necessity of respecting the Maastricht parameters surely plays a part on the choices made by decision-makers about how to allocate expenditure. Moreover, the gradual strengthening of the EEG and a more meticulous ex ante monitoring by the Commission, even more so during the COVID-19 crisis, have enhanced the constraint put on national choices. An example is that the additional resources provided by the EU can be used by national governments under the condition that they implement specific policies. The purposes that Member States should pursue signal that even European economic institutions have changed their goals recently, after acknowledging the necessity of taking care of new policy problems such as health and societal well-being (Brooks and Geyer 2020; Wolff and Ladi 2020). The current goals, which aim to reach sustainable development and growth, with the improvement of health, labour and social conditions, are substantially different from the purposes laid out in the Maastricht Treaty that pushed mostly towards fiscal responsibility. Therefore, it seems that the external constraint has increasingly amplified the power of the EU as a veto player even on national decisions, which may challenge the power of the government. External Constraint Hypothesis A stricter European constraint increases the level of spending reallocation. As for the other analysis already conducted, crises are likely to have a considerable impact on the decision-making process, forcing political actors to rethink what they already planned. A sudden crisis, by concentrating attention on the trending issue, creates a mechanism of disproportionate information processing that leads to extreme modifications. This is

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confirmed by studies of annual policy punctuations, and I hypothesise that it also holds true when considering the transformativeness of the budget during the same budget cycle. In fact, neither the parliament nor the government can avoid dealing with shocks that enter the domestic agenda when a crisis erupts. Crisis Hypothesis Periods of crisis increase the level of spending reallocation. Finally, we saw in Chap. 6 that newly appointed governments tend to modify the status quo by altering, in the budget bill, the allocation of expenditure agreed to in the previous budget law. We refrained from addressing the impact of the electoral cycle in that analysis because of some particular characteristics of the Italian case. Specifically, as in its republican history Italy has never had a government that remained in office for the entire length of the legislative term, we hypothesised that the mechanisms usually associated with the electoral cycle actually unfold as a new government takes office, regardless of the elections. As we have now turned to study the role of the parliament, however, things may be somewhat different. Legislators are likely to have divergent incentives to amend the government’s proposal according to the electoral cycle. On this, the Swedish case suggests that parliamentary changes to the executive’s spending proposal are larger prior to election years (Wehner 2013). It seems interesting to probe whether a similar effect is present in Italy, in light of the evidence that ‘when government alternation is a real possibility, government bills are largely changed in the parliament’ (Pedrazzani and Zucchini 2013: 706). Therefore, it is reasonable to imagine that the parliament, aware of the coming elections, strategically seeks to alter the budget feeding the already-known tendency of MPs to manipulate the allocation of expenditure to curry favour with their constituency. Electoral Cycle Hypothesis Years prior to elections increase the level of spending reallocation. We are going to test these hypotheses in the next section through a comparison between the budget bill and the budget law. In this way, we shed light on the balance of power between the three actors that shape the Italian budgetary policy outcome, namely the government, the European Union and the parliament. We also control for a number of crucial

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transformations that have arisen in the past decades that involved the domestic management of the budgetary process as well as the supranational sphere.

7.3  Explaining the Transformativeness of the Budget Law Italian legislation proposed by the government is subject to the scrutiny, debate and revision in the V Committees and in both chambers of the parliament. As affirmed some years ago by the former Prime Minister Silvio Berlusconi, the ‘horse’ submitted by the government to the parliament transformed into a ‘hippo’ after the parliamentary process.3 The bicameral setting has been blamed by scholars of slower decisional processes and higher policy stability (Binder 2003; Buchanan and Tullock 1962; Krehbiel 1996; Manow and Burkhart 2008; Riker 1992; Tsebelis 2002; Zucchini 2008). In Italy, the institutional design with a full and symmetric bicameralism has been identified as the cause for legislative gridlock and, because of the veto-player effect of the two chambers, the government’s inability to steer the electoral mandate and implement its policy preferences (Tsebelis 2017). However, we do not have information about the effect of the parliament on governmental proposals when the budget is under analysis. This is because the budgetary policy does not obey the same rules as the ‘normal’, simpler legislation. We here take a step forward on this line of studies and address the question of the extent to which the budget bill is altered by the parliamentary process. For the first time, we delve into the policy-making process with tools usually employed to study yearly budgetary modifications. In this way, we have the chance to understand how frictions operate in a strong parliamentary democracy where the budgetary process is indeed shaped by the characteristics of the whole budgetary session and by the balance of power between many different actors. Trading off Government and Parliament’s Preferences Does the parliament have enough room to manoeuvre to alter the spending proposals of the government or, in contrast, is the government able to exploit the rules of procedure in order to preserve the budget from substantial changes? To answer this question and measure the influence of 3

 The exact sentence is cited in Pedrazzani and Zucchini (2013: 687).

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factors identified in the previous section, we use the same dependent variable of Chap. 6, that is, an index of transformativeness that measures the distance between the budget bill and the budget law of the same year, expressed by the formula:

( ) (



)

2

∑  p xi ( t ) − p xi ( t −1)   Index of transformativeness =  N

where: p(xi(t)) is the proportion of expenditure for the budget function i at time t; p(xi(t  −  1)) is the proportion of expenditure for the budget function i at time t − 1; Using this index, we can monitor how much the intervening factors contribute to the reallocation of expenditure across budget categories comparing two different moments of the same budget cycle. By doing this, the index4 allows us to unravel the intentional decisions on budget adjustments that result from the current legislation and avoid incurring potential errors due to a different interpretation of the coding scheme used for categorising expenditure that pertains to the administrative departments. The index shows interesting variation for most of the time, then from 2016 a clear pattern of considerable reduction of the value of the index appears before arriving in 2020 (budget for 2021), when the index takes on value 0, meaning that the budget bill was not touched at all by the parliamentary process (Appendix, Table A.15).5 4  As in Chap. 6, I check the Duncan dissimilarity index (Duncan and Duncan 1955) and the index of budget distance (Tsebelis and Chang 2004), and evaluate their similarity to the index of transformativeness. The high correlation demonstrates the reliability in the index of transformativeness, thus I stick with this measure as already used in previous studies (Cavalieri et al. 2018; Cavalieri 2020) (correlation between index of transformativeness and Duncan dissimilarity index: 0.95, statistically significant with p-value < 0.001; correlation between index of transformativeness and index of budget distance: 0.97, statistically significant with p-value < 0.001). 5  See Table A.14 in the Appendix for the index of transformativeness of each year, between the budget bill(t) and the budget law(t) (analysed in this chapter) and between the budget law(t–1) and the budget bill(t) (analysed in Chap. 6), and Table A.15 for summary statistics of the index of transformativeness.

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Once again, we can plot all the annual manovre together to have a first view about the characteristics of the budgets, with the x-axis showing the level of transformativeness between the law and the bill and the x-axis showing the percentage change of the total budget (Fig. 7.1). The figure shows that most of the annual manovre are expansionary, meaning that the parliament tends to raise the total size of the budget bill drawn up by the government. In very few occasions the parliament decided to cut the total amount of the budget, adopting different strategies to make the cuts

07

10

Percentage change (total budget)

00 08

5 99

15

04 14 16 11 10

0

21

96 09

94 22

02

05

01 03

13

06 97

12

95

−5 93

−10 0.0

0.3

0.6 Index of transformativeness

0.9

Fig. 7.1  Characteristics of the budgets (bill(t)/law(t)) (1993–2022). Note: years with diamonds indicate budget retrenchment, meaning a negative percentage change between the total spending of the budget law(t) and the budget bill(t). Grey dashed lines are placed at median value of both index of transformativeness and percentage change. The year 1998 has been removed from the plot, as it takes on an extreme value for the transformativeness and would have made the figure impossible to read (for details about that year see, Appendix, Table A.14). Some labels of those manovre close to 0 are not visible, as they overlap (to check them out see Appendix, Table A.14)

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feasible and to avoid incurring an electoral backlash (Cavalieri et al. 2018). Although it is impossible to note a rationale for how the years are spread out in the plot and a relationship between the two variables (p = 0.27), Fig. 7.1 highlights some interesting variation among budgets, particularly about the transformative nature of parliamentary intervention. The years have rather high values, with the maximum variation between the law and the bill (16.17) in the budget for 1998, approved in 1997 by the Prodi I government. Although not at the same level, the budgets for 2001 (1.10, Amato II) and 2003 (1.12, Berlusconi II) are also rather high compared to the median value. These numbers demonstrate that in those years the parliament successfully amended the budget proposal of the government with substantial revisions that entered into the budget law. In contrast, the increased power of the government after the many reforms of the budgetary process that aimed precisely to amplify its role vis-à-vis the parliament (described at length in Chap. 3) has actually translated into a budget law that basically mirrors the budget bill of the government. Since 2016 (the last budget issued by the Renzi government) the index of transformativeness is extremely low and approximates 0, until it becomes null in 2021. With the budget for 2017, the government framed the whole budgetary process with the campaign for the popular vote on a package of Constitutional reforms that aimed to overcome the symmetrical bicameralism and that Renzi immediately transformed into a popular assessment on himself and his conduct. Crucially, when the referendum did not pass (4 December), Renzi went to the President of the Republic to present his resignation. It was not the first case of an outgoing Prime Minister who decided to step down during the approval phase of the budget. This time, however, although the Prime Minister formally obeyed the request of the President of the Republic to complete the budget session, Renzi de facto impeded the continuation of the examination of the budget bill. He forcefully sped up the process and coerced the Senate to vote on a document it had never before discussed (and the Committee had not finished analysing) (7 December), making parliamentary debate impossible. Oddly enough, he also decided to resort to a confidence vote—a ‘shield’ in the government’s hands which is used to foster the fulfilment of the government’s political intentions presuming the stability of the government itself (Olivetti 1996)—which however loses any raison d’être if the government’s tenure is about to end (Ciaurro 2016). This explains the almost unaltered allocation of expenditure. At the same time, the choice

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to block the exam of the text represented an umpteenth laceration of parliamentary prerogatives and proved the extremely limited power of the parliament over public finance (Di Cosimo 2019). Another important example is represented by the budget for 2009, already described in Chap. 6 as it is a budget where the majority substantially changed the allocation of expenditure of the previous year (see the difference between budget law(t–1) and the budget bill(t) in the Appendix, Table A.14), and later managed to preserve its spending goal from the parliament’s attempt to shuffle government’s decisions. Despite the cohesion of the government, the budget session was characterised by a high degree of conflict between coalition partners precisely on the budget, marking the beginning of a progressive decline of the institutional capability of the government (Marangoni and Verzichelli 2014). Nevertheless, the government managed to see its spending proposal approved with very few changes thanks to a normative stretching (see Chap. 3 for a detailed explanation) that marked the beginning of the ‘emergency management of the economic policy’ (Duilio 2013). Specifically, budget accounts of the bill were marginally changed after the parliamentary discussion because the government concentrated its efforts and intentions on the decree approved in the summer, which included the three-year economic plan and the financial bill. As spending choices were already anticipated and approved by the decree, the budget law was deprived of its role as a policy tool. That manovra exemplifies the gradual shift of the authority for legislative production into the government’s hands only, and the conveyance of budget decisions into venues that are far-distant from representative institutions (Bergonzini 2014). Transformations in Itinere: Recurring Evidence In spite of the importance of figuring out in details the mechanisms of each annual manovra through a mixed-method strategy (Busenberg 2004; Pralle 2003; Repetto 2006; Resodihardjo 2009; Walgrave and Varone 2008), this type of analysis is not suitable for uncovering those dynamics that regulate the management of the budgetary policy in Italy with a relevant level of generalisation. Therefore, as in Chap. 6, I measure the effect of the independent variables already identified in the previous section on the level of transformativeness of each annual manovra. In this regard, the

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electoral cycle is measured using a dichotomous variable, assigned value 1 in case of years immediately prior to elections and 0 otherwise.6 I also add those control variables used for the statistical analysis in Chaps. 5 and 6. More precisely, I included the degree of conflict over the budget, suspected to increase the level of variation between the law and the bill, as more disputes would make it difficult to find a compromise on bold decisions and would probably result in the custom of widespread micro-sectional adjustments across a variety of budget categories that eventually alter its initial purposes. Technocratic governments, instead, as they are usually extremely powerful—not by chance have Italian technocratic governments been responsible for the most drastic budgets7—are likely to have enough strength to carry out their spending decisions, thus the index of transformativeness is expected to decrease when they are in office. This is expected to be true even in the case of Draghi’s government, which did not engage in budget restraints but instead boosted expenditure. However, even in this case it may have had enough power, granted both by favourable praxes in the management of the budgetary process and by the lack of need to be responsive to his constituency in contrast with political government, to preserve the allocation of expenditure as drawn up in the bill with no drastic changes. Ideological reshuffling from one year to another seems not to fit theoretically into this analysis. As the variable recognises the change between two governments, while the analysis here involves the impact of the parliament on governmental legislation during the same year, I do not consider the ideological alternation between two consecutive governments a factor with potential explanatory power. Similarly, GDP growth is a time-varying aspect that spreads over years, thus is theoretically irrelevant in this study. The following formula describes the model:

6  Overall, years prior to elections (value 1) correspond to 23.3 per cent of the total while years when elections were not held make up the remaining 76.7 per cent. 7  The Amato I government in 1992 was forced into a severe correction of public accounts to ward off the risk of default: a manovra that was remembered as the harshest budget package ever (Barucci 1995; Pesole 1994, 1996), until Monti took office and doubled the Amato I budget.

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Table 7.1 OLS regression model

Transformativeness bill(t)/law(t) Constant Parliamentary fragmentation Budgetary process centralisation EU external constraint Crisis Electoral cycle Conflict over the budget Technocratic government

0.43 (0.61) 0.01 (0.07) –0.06 (0.04) 0.10 (0.09) –0.08 (0.18) 0.04 (0.18) 0.00 (0.00) –0.13 (0.21)

Note: statistical significance with p-value < 0.1 (†), 0.05 (*), 0.01 (**), 0.001 (***)



Transformativeness of the manovra = β 0 constant + β1 parliamentary fragmentation + β 2 budgetary process centralisation + β 3 EU external constraint + β 4 crisis + β 5 electoral cycle + β 6 conflict on the budget + β 7 technocratic government + ε

As in Chap. 6, considering the characteristics of the dependent variable, I decided to run a simple OLS regression model (Table 7.1) to test the hypotheses and assess the impact of the predictors on the level of transformativeness of each annual manovra.8 The effect of the covariates goes in the expected direction for almost all predictors. The sole exception is the crisis, which decreases the level of transformativeness. Its negative impact could be due to the fact that an external shock substantially shrinks the time for taking a decision, forcing the parliament to agree on the government forecasts. Parliamentary fragmentation, although with the expected positive impact, is not statistically significant, nor are any of the other predictors. 8  After checking the assumptions that must be met in order to run an OLS regression, I found that the transformativeness value of the budget for 1998 (16.17), which is the highest value on by the index, affects the assumption. The OLS is run excluding it. Table A.16 in the Appendix shows the results of the OLS regression using the percentage change of the total size of the budget as a dependent variable.

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The sole factor that almost achieves explanatory power is exactly the budgetary process centralisation (p-value = 0.13). This is intuitive, as a higher ability of the government to rule the budgetary process seems to be associated with a reduced impact of the MPs to alter the allocation of expenditure outlined in the budget bill by the government itself. The other independent variables are not statistically relevant at all, suggesting that the institutional and political context, along with the domestic and international economic environment of each annual manovra should be carefully scrutinised to understand the pattern of change. Statistics do not help in this situation. This is probably because the decision-making process is a sort of puzzle where several pieces are combined each time in a different way, which eventually shapes the final outcome. The crucial point is that a similar outcome can result from a different arrangement of these tiles, therefore it would be helpful and more insightful to investigate each case in-depth in order to understand the most relevant factors and dynamics that determine the final budget adopted each year. Intuitively, every single annual budget has its own story and is marked by specific characteristics due to a number of intervening factors, as well as potentially changing conditions during the months of discussion before the approval. Such a detailed analysis of single manovre is beyond the scope of this book and would deserve a study of its own. However, we can still try to derive some considerations from the results of the analysis conducted in this chapter about the effect of the parliament on the governmental budget proposal.

7.4  Discussion In this chapter, we wanted to measure the power of the three fundamental actors that are invested by the Constitution and by European treaties with a crucial role during the Italian budgetary process. These are the government, the European Union and the parliament. First, in a strong parliamentary democracy such as Italy, clarifying the role of both the government and the parliament in forging the budget law helps to grasp the balance of power between institutional actors in representative democracies. In addition, for a few years the European Union—the Commission in particular—has interceded in domestic policy processes, with greater leeway especially in the budgetary process. The goal that drove this chapter was precisely that of understanding who is really in charge of budget policy in Italy. In a polycentric system such as the Italian one, is the government able to carry out its mandate using the budget? Is the symmetrical

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bicameralism still responsible for a laden legislation that grants single MPs the power to block the government’s spending proposals? And furthermore, has the European Union assumed increasing power, becoming the most important actor to decide the budgets of Member States? We aimed to answer these questions measuring the impact of some institutional and political factors on the degree of expenditure reallocation across budget categories from the budget bill to the budget law, as a result of the parliamentary process. Passing the Buck: Technocrats’ Budgets The statistical analysis showed us that none of the hypotheses is verified and, what is more, that none of the independent and control variables has a statistically meaningful explanatory power. The sole predictor that has an effect, when looking at the percentage change of the total size of the budget (see Appendix, Table A.16), is being a technocratic government. This holds true if you inspect the variation between the budget bill and the budget law of the previous year and the variation between the budget law and the budget bill of the same year. Expectedly, the coefficient is negative, indicating that technocratic governments tend on any occasion to cut the total size of the budget compared to political governments. In fact, technocrats have always been appointed in government as a ‘last resort’ purposefully to cut the budget in periods of economic distress (Duranti 2019). This was the case of the Amato I government, which gradually transmuted into a sort of ‘semi-technocrat transition cabinet’ (Amato 1994; Pitruzzella 1997; Verzichelli 1999: 193), and was especially the case of the Ciampi (1993–1994), Dini (1995–1996) and Monti (2011–2013) governments. The collapse of the Amato I government after the positive result of the 1993 referendum made it impossible to form a political government and pushed the President of the Republic, Oscar Luigi Scalfaro, to opt for a technocratic solution, where the government policy programme was written in concert by the Prime Minister and Scalfaro himself. Eventually, the XI legislature, headed by technocrats, was fractured by crushing political turmoil which blew away the ‘old’ mainstream parties that had been sitting in parliament for almost forty years. A comparable situation happened in 2011, marked by the most onerous aftermaths of the Eurozone crisis, that Monti was asked to try repairing. That moment was recognised as the beginning of a deep party system deconstruction (Ceccarini et al. 2012) that paved the way to the rise of a new party system where the M5S—a

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new actor outside the usual left/right political divide (Ceccarini and Bordignon 2016; Tronconi 2015a, 2015b)—was one of the main characters in a tripolar competition (Chiaramonte and Emanuele 2014; Cotta and Marangoni 2015), and remained at the core of the party system until the appointment of another technocratic government, held by Draghi. In all of these situations, Italy was facing both harsh economic distress and even more shattering political turmoil. In fact, Ciampi, Dini and Monti have been considered the ‘bookends of the Italian Second Republic’ (Bosco and McDonnell 2012: 46) that marked the transition phases from the First (1948–1991) to the Second Republic (1992–2012), and from the Second to the Third Republic (2013–ongoing) (Chiaramonte and De Sio 2019). The sole and unique exception to this pattern is that of the Draghi government (2021–2022) which followed the collapse of the Conte II9 government because of a governmental crisis precipitated by Renzi’s party Italy Alive, and was appointed precisely to spend a huge amount of money instead of cutting. This is extremely interesting as, for the first time, a technocratic government is not associated with severe budget retrenchment but with budget expansions: a fact which demands additional thoughts about the role of technocrats themselves and about the reasons why they have been always asked to take care of critical moments (see Conclusion). However, even in this case, the whole budget had to succumb to an established procedure that was detrimental to parliament’s prerogatives. The flood of decrees (the fiscal decree, the PNRR decree and those to address the pandemic emergency) along with the budget bill inevitably caused a rough, if not totally non-existent, examination of the budget already at the V Committee. That new budget—to which the majority added more than 6000 amendments while opposition parties only 789 (Bartolucci 2022)—earned the epithet of ‘law of the two nights’,10 one passed in the Chamber of Deputies and one in the Senate. As already happened in 2019 and 2020, the parliament acted as a monocameral institution, and the budget was ‘examined’ only in the Senate— actually, in just one meeting of the Budget Committee, then approved in 9  The Conte II government was composed by the populist M5S and the mainstream centre-left Democratic Party and minor parties such as IV and LeU which entered into office after the collapse of the Conte I government, where M5S was governing with the radicalright League (Passarelli and Tuorto 2018), forming the first fully fledged populist government in Italy and in Western Europe (D’Alimonte 2019). 10  Senate, Ass. res. sten. sed. 23/12/2021, p. 56 (Renzi).

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the House with a confidence vote—while the Chamber could simply approve it (Piccirilli 2022). Nevertheless, despite the interesting evidence about the higher and significant capability of technocrats at modifying the total size of the budget, we found no statistically powerful explanatory factor for the degree of transformativeness from the budget bill to the budget law of the same year. In fact, the decision-making process is a tangled combination of several pieces whose different arrangements shape the final outcome, which might not be perfectly grasped by a statistical model. Independent variables may cause a certain outcome but in a different way or independently of one other (Seawright and Gerring 2008). This is why a meticulous inspection of the decision-making process that leads to the issue of the budget law would be interesting and useful to refine the interpretation of the interconnection between politics and policy in the Italian case. Government Assaulting Itself: A New Type of ‘Stagecoach’ Attack At a general level, a simple analysis of the index showed intriguing variations over time in the degree of transformativeness of each annual manovra. Some years are marked by a high level of change that signals the power of the parliament to alter the government’s spending intentions drawn in the budget, while others showed very low values of the index, meaning that the government successfully protected its policy goals. Interestingly, the index has a blatant decreasing pattern with values that arrived at 0 in the first year of COVID-19, when the budget bill was not touched at all by the parliamentary process for the first time in the history of the Italian budgetary policy. This is the result of a series of reforms that aimed to increase governments’ prerogatives over the budget while subtracting room to manoeuvre from the parliament, to avoid risking the ‘stagecoach attack’ that has long characterised Italian budget policy. An isolated attempt to try bringing control of the budgetary figures back into the parliament’s hands (according to the president of the Chamber of Deputies in that year) was undertaken by the Prodi II government during its first budget of the XVI legislative term (2006–2008). On that occasion, the final phases of the budget for 2007 were marked by such chaos that the V Committee was not even able to conclude its examination of the document during either the first or the second reading. During the first, the majority presented a budget bill with such a multitude of amendments and new measures as to

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deserve the epithet of finanziaria à la carte.11 The government eventually announced its intention to resort to a confidence vote (16 November) in order to ensure the approval of the text, eventually composed of just 18 articles (from the original 170) but with the last one made up of 810 clauses. During the second reading at the Senate, after a plethora of amendments (4975), the government submitted a maxi-amendment—a unique article with 1364 clauses—covered once again by the confidence vote, following the precedents of the XIV legislature. This was a mild attempt to get back on track by correcting the normative stretching permitted by the Berlusconi government and giving control back to the parliament.12 Since it was not possible to alter the text of the maxi-amendment, at least a sort of parliamentary control was essential to guarantee its awareness of the contents of the budget law. All of this was taking place while the Council of elections of the Chamber of Deputies started an in-depth examination of some electoral ballots (14 December); the Court of Auditors questioned the legitimacy of a few norms introduced with the maxi-amendment13 and the President of the Republic rebuked the majority about the procedure used to approve the budget, affirming that the confidence vote on a single article encompassing an elephantine number of measures had reached ‘the peak of a legislative practice that slipped away from the possible comprehension of the public opinion’ (20 December, own translation). Within this framework, the budgetary process took for granted the legitimacy of a maxi-­ amendment with a confidence vote (according to a recent praxis), although trying to counterbalance it by requiring additional limits. A first limit set boundaries on the content of the budget (boundaries on the subjects already discussed in the referring Committee, so-called confini delle  The secretary of the Presidency of the Chamber and member of the opposition Mauro del Bue maintained that that was ‘a sliced financial bill; after all, the outcome produced by a sliced majority […] can be at best a sliced financial bill, result of thousands of conflicts, thousands of problems, thousands of demands; a never-ending financial bill because of neverending conflicts, never-ending problems, never-ending demands’ (Camera, Ass., res. sten. sed. 9/11/2006, p. 38 (Del Bue) (own translation). 12  Basically, the President of the Senate claimed that he gauged the unique maxi-amendment admissible only because it was based meticulously on the limits set by the previous draft scrutinised by the assembly and the acceptable amendments had already been submitted by the majority and the Committee (Camera, Ass., res. sten. sed. 17/11/2006, p. 12). 13  Because the government could not modify the text of the maxi-amendment at that stage of the budgetary process, it ensured that it would have later abrogated the norms with a specific decree. 11

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materie trattate in sede referente), while a second one concerned the duty of the Committee to analyse the maxi-amendment and the financial backing (introduced in 2005). Eventually, the budget law considerably diverged from the bill, not only for the considerable reallocation of expenditure across budget categories but also notably for the massive correction of the total magnitude of the budget. The budget for 2007 moved from being a retrenchment manovra where the government aimed to cut each budget authorisation, to being an expansionary manovra where all the spending items were indiscriminately increased after the parliamentary session (a unique and sole case in the story of the Italian budget policy during the period under analysis), with a growth rate of the overall expenditure of 10.00 per cent. After all, the government managed to keep its promise and to shrink the deficit in 2007 to –1.43 per cent of the GDP (from the previous year’s –3.50 per cent), decreasing also the debt-to-GDP level from 105.23 to 102.39 (see Table A.1  in Appendix). In fact, in contrast with the evident effort to implement a substantive spending review—one of the few long-term attempts of the past thirty years14—the majority itself had to surrender to the coalition’s infighting which caused a bloat of expenditure because of the multitude of amendments to the documents, most of which were added by coalition partners. This example serves merely to underline that each annual parliamentary session is characterised by particular situations and praxes, thus it is very unlikely we can find a common pattern that may have a statistical value. However, keeping in mind the evolution of the budgetary process described in Chap. 3 and a few examples provided here and in Chap. 6,15 we can point out some interesting aspects of the balance of power between institutional actors that we wanted to assess in this chapter. Presuming that the main issue was the fragmentation of the budgetary cycle and a weak role of the government vis-à-vis the overblown bicameral system, the reform process at the national level has sought to remove the strong institutional frictions ruling the Italian budget. However, this series of reforms  Interview with Dr Chiara Bergonzini (6/12/2019).  The qualitative study of some annual manovre described in Chaps. 6 and 7 used a historical perspective with the purpose of interpreting the actors’ role and their decision-making power, and to unravel the complexity of interacting factors in joint decision-making processes (Scharpf 1988, 1997, 2000). To do so, in addition to the data available and already used to conduct the statistical analysis, I traced the pattern of events through the scrutiny of parliamentary debates and documents, and interviewed Dr Chiara Bergonzini. 14 15

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‘did not achieve the expected outcome of centralisation and rationalisation of the decision, ending up producing the opposite outcome’ (Bergonzini 2014: 51, own translation). The result is that the budget is now nearly unmanageable even for a strong majority. Yet, the cause has moved from the parliament’s opportunistic behaviour to the governing parties’ irresponsible actions and widespread internal infighting. The ‘stagecoach attack’ is no longer a real issue of the budgetary session as we meant it in the past decades. It lasts, but with a renewed shape. Indeed, the fragmentation and exposure to particularistic interests is currently the government’s flaw: in particular a short-term budgetary policy view drawn up in the bill and disputes internal to the majority (Bergonzini 2021). This was confirmed by our analysis, which showed that the degree of conflict about the budget within the majority limits the possibility of substantial budgetary changes. However, the government’s faults show no sign of decreasing and become more serious each year, creating an unsteady situation where it is already possible to get along without the parliament (Bergonzini 2019). Basically, old institutional frictions have been replaced with another type of brake. Theoretically, the government would have all the tools to steer a long-term budget policy. Practically, the cognitive frictions of governing policy-makers crush any potential achievements.

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CHAPTER 8

Conclusion

8.1   A Mammoth Doesn’t Change Its Size, but Changes Its Shape The story narrated in this book encompasses thirty years of Italian politics and policy-making through the study of the budgetary policy and budget changes. The book started with a brief narrative of the budget for 1993 issued by the Amato I government in a moment of deep economic and political crises. After three decades of transformations, we are forced to close the book with the story of another profound crisis: pandemic, economic and political. In this troublesome setting, the Conte II government—the last political government of the XVIII legislative term (2018–2022) that issued a budget—had to measure its ability to deal with a huge, never before seen, amount of money to be allocated for the next year and the following triennium. To be precise, we are talking about € 800 million and a further € 3.8 billion added in itinere, compared to the average of € 300 million in the previous years. In addition, the government has five times asked the parliament for a budget deviation to address the pandemic, such that 2020 is recognised as the ‘year of the five budget laws’ (Boeri and Perotti 2020). In spite of fierce resistance to the government by opposition parties and on some occasions even by governing parties (e.g. Italy Alive), the budget session was characterised by cooperative and accommodating efforts (at

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least until the approach of the final approval), which was far from the norm during the budgetary session (Bergonzini 2021). Nevertheless, the manovra for 2021 reproduced, as it has for at least a decade already, the worst practices of the previous years, especially those of 2018 and 2019, and created a new one, in a situation that seems each time to be a ‘chase to the worst precedent’ (Lupo 2009). Briefly, in 2018, the Conte I government pushed a confrontation with the EU (Cavalieri 2020) and the alienation of the parliament to an extent never before experienced, with the suppression of the usual parliamentary procedure regulated by art. 72 of the Constitution (Cavino 2019), and a confidence vote each time on a document that none of the parliamentary bodies had previously examined and which differed substantially from those analysed and voted on earlier (Bergonzini 2019). In 2019 (Conte II), we witnessed the establishment of a de facto unicameralism, as during the second reading at the Chamber, the majority added a confidence vote on the same document approved at the Senate, preventing the usual third reading and obstructing the amending process (Cavalieri 2020). In 2020 (again the Conte II government), besides the usual praxis of stopping the analysis of the budget by the Committee because of the government repeatedly asking to add reformulated proposals (five times), in some cases because of substantial errors, the President of the V Committee1 proposed collapsing the whole first section (i.e. the substantive part, ex financial bill) of the budget into a single maxi-article, paving the way for a mere presentation at the Chambers of the debate already concluded, which was meant to remain the only debate over the 2021 budget. In practical terms, that means that even the praxis of the maxi-­ amendment—exploited each year by the government to entirely substitute the budget bill previously discussed, and covered by a confidence vote to protect its contents and ensure its approval—was replaced, bringing to conclusion the bad revolution inaugurated in 2018 (with a precedent in 2016) that currently sees the establishment of a de facto unicameral legislature (Bergonzini 2021).2 The last budget law of the legislative term,  Camera, Comm. V Bilancio, res. sed. 20/12/2020, p. 38.  V. Camera, Assemblea, res sten. sed. 22/12/2020, p. 2 (Fassina). During the budgetary session of the 2021 manovra, the Chamber was examining the budget while the Senate analysed the ‘anti-Covid’ decree-law, with the agreement that neither of them would modify what was written in the document on which the other Chamber was working (Marro 2020). 1 2

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issued by the Draghi technocratic government in 2021, did not improve the situation, in terms of parliamentary procedures. Again, the examination of the budget was superficial and extremely fast even in the Committee. The ‘law of the two nights’ (see Chap. 7) was approved by a de facto monocameral parliament, which passed the budget after only a single meeting of the V Committee. Despite attempts to trim it—masked only by the fact that for some years it has been composed of just one article (i.e. the maxi-amendment which however contains hundreds of clauses)—the Italian budget law is still a ‘mammut’3 according to a well-fitting epithet that scholars of parliamentary law attached to it. Nevertheless, it has moved and changed substantially over the past decades. The power of the parliament over the purse represented the most serious reason for the extreme inflation of the budget that eventually required the government to issue, almost each year, a corrective manovra. During the 1970s and 1980s, the centrality of the parliament in driving Italian economic policy and deciding the allocation of funds, while leaving aside the government as a mediator between the different stances of the majority (Masciandaro 1996), gave rise to the ‘Italian anomaly’ (Lupo 1999: 561). This anomaly, in a few respects, seems to have been overcome after considerable efforts to reform the regulations pertaining to its management. Why, then, does the budgetary process continue each year to make the whole spectrum of Italian parties—not to mention the media—so hysterical despite improvements and a strict and pre-determined timing dictated by the supranational level? To answer that question and recognise which tendencies and purposes prevail within the Italian budget, one needs to have a broad and deep knowledge of both the budget policy and the politics behind it. The book aimed to provide the reader with the tools to interpret these aspects, looking at how budgetary policy changed in Italy in the past thirty years. The multifaceted analysis carried out in the previous chapters allows us to compose a puzzle that explains three crucial aspects about the politics of the budgetary policy in Italy.

3  ‘Dal mammut all’assalto continuo’, Lavoce.info, 20/12/2012, viewed 16/01/2020, https://www.lavoce.info/archives/3781/legge-finanziaria-iva-irpef-governo-montielezioni/.

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8.2  Budget, Institutions and Frictions As mentioned in the introduction, a 2012 ruling of the Italian Constitutional Court judged that the budget is not ‘simply’ a matter of tidy accounts. Rather, as Wildavsky informed us, it is expected to provide continuity for planning, change for policy evaluation, flexibility for the economy and rigidity for limiting spending (Wildavsky 1978: 501), while it is already certain that it is impossible to reconcile all of these aspects in a single piece of legislation. This causes the inevitable and recurring dissatisfaction with its management. In fact, in spite of attempts to create it a technical document that is expected to provide ‘only’ general guidelines for the national political economy for the next year and the following triennium,4 the budget remains a political document, where the government tries to exploit the budget to steer its electoral mandate and implement particularistic spending choices. Each year the government tries to move as far from the status quo as it can, according to its spending preferences. When choosing how to (re)allocate expenditure across budget categories in the budget bill, it is doing nothing but trying to be responsive to its electorate. Ultimately, Forte reminds us that ‘nothing is free and when one chooses to give, one also chooses from whom to deduct’ (1992: 155, own translation). However, while the government tries to adjust the budget according to its spending intentions, frictions restrain changes. As the Punctuated Equilibrium Theory teaches us, institutional frictions that rule the budgetary process and policy are extremely forceful against reformation, thus locking the pattern of change into the existing scheme. In the case of Italy, the toughest hindrance is surely the symmetrical bicameralism which was originally designed with the clear aim of avoiding any potential coup de main of the executive. The strong parliamentary nature of the Italian institutional design reduces, at least in theory, the possibilities for the government to pursue its spending goals and, along with an obligation to earmark funds for multi-annual spending commitments and considering expenditure for inherited policies, limits the room to manoeuvre. A few centuries ago, what represented the parliament’s power over the purse was ‘regarded as the most complete and effectual weapon with which any constitution [could] arm the immediate 4  This is especially true after the constitutional reform with L. 1/2012, that is, the Fiscal Compact and other reforms (e.g. L. 196/2009) that wanted to leave aside micro-sectional and circumscribed dispositions and demand ordinary legislation for specific decisions on single expenditures to carry out policies decided in the budget (Bergonzini 2021).

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representatives of the people, for obtaining a redress of every grievance, and for carrying into effect every just and salutary measure’ (Publius 1788: 58). Times have changed since then and today the power of the purse is all in the government’s hands. From a long-term perspective, the MPs moral hazard and their capability of transforming the budget in favour of micro-­ sectional interests which constituted the most evident and damaging practice of a few decades ago is still in place, although its execution has moved from the parliament to the government. More precisely, while during the period of ‘consensualism’ opposition parties (especially the PCI) were able to pass their amendments, all the reforming efforts since the 1990s, and even more so the enduring transformations of parliamentary practices, have deprived the members of the opposition of this chance, which is nowadays the exclusive jurisdiction of the executive. Whereas the unburdened process resulting from about forty years of reforms seems to have had a positive impact on the budget production, especially concerning respect for the timing dictated by the Constitution (certezza dei tempi di decisione), it is exactly in claiming this compliance that the government has shred the other two pillars of the budgetary process (i.e. the prohibition on deliberation over other measures of a financial nature, divieto di trattazione di altri affari; and the safeguarding the content of the substantive law attached to the budget, tutela del contenuto proprio) and even the Constitution itself. The intertwining of these norms has created a breeding ground for an interpretative stretching of the norms themselves, which developed into parliamentary practices that have sometimes bordered on unconstitutionality. The long-lasting fluidity of the budgetary process continues to exist with a renewed face, that is, the unsteady propensity of the government to respect the regulations of the process and the balance of power between the actors involved (Di Cosimo 2019). In this regard, while the budgetary session is certainly better structured compared to a few years ago, the accumulation of new customs makes the timing of the process (except for compliance with the 31 December deadline) and thereby the contents of the law highly susceptible to political circumstances. This arose even more evidently after the economic crisis, which opened a new phase of political instability, distinctly showing the enduring attempt of the government to endow itself with ampler leverage in the policy-making process. In fact, the government has markedly expanded its powers so as to arrive at a new situation where ‘in this weird Italian form of government, the government-majority

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axis becomes substantially the absolute ruler, particularly in case of strong and solid governments’.5 Institutional frictions have been slackened, to some extent, thus facilitating the chance for moderate transformations, instead of major changes. However, as we have seen throughout the book, punctuations show no sign of reduction. This is a clear sign of the lack of a long-term conception about how to manage the budget policy and which functions it exerts and clear proof of actors’ bounded rationality. Cognitive limits are ever present. Considering just the analysis conducted in this book, the types of cognitive shortcomings that emerge are those inherent to the partisan nature of politics. The fact that governmental ideological reshuffling and governmental ideological polarisation are among the most important explanatory factors tells us that political actors are far from being rational and the competitive nature of the political game further amplifies this shortcoming. In addition, the context in which politicians operate may further emphasise their cognitive limits, as in a vicious circle where cognitive limits and a troublesome context reinforce each other. More precisely, actors’ cognitive limits, along with institutional rigidities, have certainly played a role in the very poor management of the budget policy over decades and substantially contributed to worsening its consequences. The Eurozone crisis and its aftermath are blatant examples. At the same time, all of the crises that have happened in the last few years have considerably shrunk the room of manoeuvre of decision-makers, further highlighting their cognitive limits.

8.3  Policy-makers, Cognitive Limits and Crises As we repeatedly saw throughout the various chapters, crisis is a keyword. Many crises have happened over the past decades. The time span we covered allowed us to point out the effect of the two most important ones (as they both affected the budget policy of national countries), namely the Eurozone crisis and the pandemic. From a PE perspective, a crisis opens a ‘window of opportunity’ (Kingdon 1984) that may cause a budget punctuation. We showed that this is precisely what happens to the Italian budget policy, which perfectly matches the PET tenets. Tiny adjustments that slightly depart from the status quo mark the whole pattern of the budget

 Interview with Dr Chiara Bergonzini (6/12/2019, own translation).

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policy, then a sudden shock occurs and shakes the whole pattern creating a punctuation. Incidentally, these two crises have acted as triggers not only for budget changes but also for procedural transformations and for the European Economic Governance. On the one hand, at the national level, the 2007–2009 Great Recession marked the real beginning of a new phase in the budget policy’s direction. Although it had not affected Europe or Italy yet, the sudden need to face the recession was exploited as an excuse to boost ‘the shift of normative authority in the hands of the executive; the transfer of the key decisions about the economic policy in venues far-­ distant from the representative ones; the decay of representative institutions and their incompetence both to steer and solve and, more simply, to understand and face financial and economic issues’ (Bergonzini 2014: 49, own translation). That moment represents a turning point which, plainly, had substantial spillovers into the overall institutional organisation, which has also impinged on the parliamentary procedures of the budget cycle. On the other hand, at the supranational level, the Eurozone crisis fostered a radical development of the EEG. The rapid sequence of new supranational regulations adopted after the debt crisis (described at length in Chap. 3) increased the complexity of the process and its density. As is evident, whereas the government tried to bypass frictions exploiting the budgetary norms in its favour, another friction has entered into the national level, that is, the EU level. All in all, Italy experienced two counterposed reform processes of the budgetary procedure. One has tried at the domestic level to empower the government, pursuing the goal of loosening the parliamentary frictions that characterise the decision-making centre, and reinforce the deliberative nature (meaning the fact that political actors debate and choose a policy proposal within the institution itself and eventually make a decision putting it to the vote) of the process. Another one, at the supranational level, has fragmented the decision-making process and added supranational actors, thereby pursuing a collective decision-making strategy. Both of these have been effectively implemented. Thus, while the Italian domestic budget process still leans primarily towards potential fickleness, at supranational level it looks quite rational, placing itself somehow halfway between being an erratic and a meticulous process. That happened not only in the Italian case but throughout all the European countries as budget policy and process is no longer a sole domestic issue.

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Interestingly, European institutions have similarly shown their limits, especially during the management of the Eurozone crisis. The recipe of harsh austerity measures and budget cuts that was inflicted particularly on debtor states during the emergency demonstrated a myopic vision among European policy-makers. They opted for the same solution for all Member States, preferred by Northern European countries that loudly requested fiscal responsibility, and later doubled down on those measures meanwhile reinforcing both the surveillance and the enforceability of the rules-based coordination regime (Laffan and Schlosser 2016). In this respect, although the EEG could have benefitted in that moment of collective decision-­ making, the top-down approach (see Chan and Zhao 2016) simply spread the higher bureaucratic level’s cognitive limits. At the theoretical level, the design of the European multilevel governance, which involves different levels of government in ‘jointly’ compiling national budgets, leads us to think about a top-down incrementalism, which seems more durable, grants more flexibility to European countries and is likely to be more functional thanks to the higher stability it fosters. In this regard, diversity is a key factor. More diverse groups have a higher capability of understanding information and making more thorough predictions and choices than less diverse groups (Surowiecki 2004; Page 2007). That seemed not to be the case, however, during the Eurozone crisis. Instead, the COVID-19 crisis was managed with a totally different approach, which acknowledged and considered countries’ different situations and challenges. The impact of the two shocks shows that not all crises are handled in the same way leading to the same type of policy changes. In this respect, European decision-makers surely have learned from the previous crisis, and the recent response to the COVID-19 pandemic in terms of budget management seems to be substantially less affected by cognitive limits. This is not only a lesson for Italy, but equally for Member States and for the Union itself. The multilayered and collective decision-making process implemented through the strengthening of European economic governance appears currently the most effective tool for drawing up a more functional budget policy and a more rational response in case of external shocks, and supports the idea that decision-making processes engaging many independent decision-makers bring stability and reduce the likelihood of punctuated outcomes (Epp 2018). As affirmed by the former Bank of Italy governor Donato Menichella in 1953, the action ‘of the European organisation […] constrains [Italy], but also helps [it] with its advice and without doubt reduces mistakes’ (own translation).

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8.4  Pitfalls on the Path Towards Collective Decision-Making Nowadays multilevel governance exerts its substantive influence into the domestic budgetary arena. This has not been a smooth process, however. As mentioned in the introduction, Italy has long been ‘one of the homelands of Europeanism’ (Pasquinucci 2016: 49, own translation), especially at the very beginning of the integration process. That sentiment, shared by both citizens and domestic elites, started to faintly crumble at the beginning of the 1990s, after the signing of the Maastricht Treaty. That first decline was nothing compared to the drop following the introduction of the single currency and even more during the 2009–2014 economic crisis. Political actors contributed substantially to the shift of attitude towards a growing opposition against supranational institutions. Already in the 1990s, Berlusconi idealised the self-sufficiency of the country and of Italian citizens, feeding Eurosceptic attitudes (Orsina 2013: 52; Pasquinucci 2016) many years in advance with respect to what happened later in the whole European continent and through all European political parties. The Eurozone crisis triggered a turning point in this attitude, amplified after 2013 by the populist Eurosceptic M5S (Conti and Memoli 2015) and the first populist government of M5S and League after the 2018 general elections. That government openly put on the government’s agenda a fierce confrontation—if not opposition—to the European Union, emphasised by the attempt to have as Minister of the Economy an economist, Paolo Savona, who supported the exit of Italy from the single currency (Bressanelli and Chelotti 2022). The management of budget policy mirrors this gradual shift, which modified the national perception of the European Union from a ‘co-operative’ to ‘competitive’ veto player (Zohlnhöfer 2009: 99). The strain that happened during the 2018 budgetary process, reviewed at the beginning of this chapter, was indeed a consequence of the fight between the Italian government and the European Commission. Chasing the implementation of M5S and League’s favourite policies, the government decided to disregard Italy’s commitments regarding the MTOs, modifying the original accounts foreseen in the DEF and setting deficit levels to 2.4 per cent (2019), 2.1 per cent (2020) and 1.8 per cent (2021) of the GDP. By doing so, the government openly clashed with EU institutions, depicted from the very beginning as the real enemy of Italy’s sovereignty, whose negative aura was further supported after the severe critiques by European commissioners of the Italian

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budget plan and the threat to open an infringement procedure for excessive debt (Cavalieri 2020). Following the alarming growth of the spread which reached 336 points (the highest level since 2013), the rejection of the budget by the Commission and the opening of the procedure ‘for excessive deficit related to the violation of the debt parameter’ (Commission 2018), and while the President of the Republic rebuked the government by asking for a constructive dialogue with supranational institutions, the government agreed to substantially correct the financial forecasts that eventually made the withdrawal of the infringement procedure possible. Clearly, much is changed from the words of Menichella cited earlier and, all things considered, it is not a real surprise that the Italian opposition towards the EU has always been driven by a refusal of the external constraint and supranationally imposed commitments (Pasquinucci 2016). Curiously, the ‘federalist’ rhetoric, which rested on the belief that European institutions prevail and surpass national ones, has been used at the same time as a strategy, adopted by some political parties and governments, to free themselves from the responsibility for any critical and thorny decisions resulting from the European coordination (Lupo 2019). In fact, some scholars have discovered that reinforcement of the EEG has granted governments across Europe a sort of legitimacy to pursue ambitious and sometimes thorny economic measures, or binding fiscal reforms disdained by national public opinion, with the possibility of blaming the EMU for the unpopular choices (Rotte and Zimmermann 1998; Sahlin-Andersson 2000). In Italy, this happened during the negotiation process to enter into the EMU (Dyson and Featherstone 1996) when the Prodi government introduced the so-called Eurotax aimed at accomplishing the required fiscal adjustments. In that moment, the situation of crisis that demanded some kind of policy response from all actors of the system (Posner and Blöndal 2012: 20), represented by the speedup in the homogenisation process of the European countries’ budgetary policies to meet the Maastricht criteria and enter the EMU, became so pressing that the government eventually surrendered to the diktat of the Communist Party—which externally supported the government and put its veto on cutting pensions—and secured the entrance of Italy into the EMU by resorting to a temporary measure, that is the Eurotax and by cutting budget programmes that had a low priority and were more controllable (see Chap. 7). Similarly, in the recent past (especially 2018 and 2019), the Europeanised national budgetary session preferred to respect the timeline dictated by the European Semester over the necessity of granting, at the domestic level, a proper discussion on the budget by the parliament.

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However, since the pandemic crisis, it seems that a higher awareness of the shared responsibility for the formulation of European policies has started to emerge with a better capability of the system to internalise the external constraints. In this regard, the changing face of European institutions towards a more Keynesian-oriented approach after the jolt of the COVID-19 pandemic crisis, and particularly the accommodating attitude of Germany and the European Commission towards a solidarity approach to face the consequences of the pandemic, have been crucial (Karremans and Cavalieri forthcoming).

8.5  Responsiveness, Responsibility and Change To conclude, what is the meaning of politics where the budget policy is concerned? We can try to answer this question by arguing about the balance between responsiveness and responsibility. As famously stressed by Mair (2011), parties are currently caught between the demand for responsiveness and the need for responsibility, which, he said, more than ever seems to be hardly reconcilable. In this respect, the budget policy probably constitutes the most fertile breeding ground. Because the actual purpose of public budgeting is—or, at least, should be—to take care of the long-term needs of citizens, I think that the only way to carry out an effective budget policy is by being responsible. Does it mean that the burden of responsibility does not allow parties to be responsive to their electorate? I think not. But the ‘politics of constrained choice’ (Laffan 2014)—constrained by both supranational requirements and the short-sighted attitude of national actors—makes it extremely difficult to implement public policies through the budget. It seems not by chance that in Italy the most long-term budgetary decisions have been demanded of technocratic governments. And since the COVID-19 pandemic crisis—which also brought about a new European approach with a massive inflation of liquidity to Member States—it is no longer just a matter of cutting budget. In fact, in a very particular situation caused by the endurance of multiple emergencies, the technocratic Draghi government was called to decide how to allocate a huge amount of funds, doing exactly the opposite of what technocratic governments have always been called to do in times of crisis. Although this is a unique case, it deserves attention, and we may have to ask ourselves whether it constitutes a guilty plea from political parties. In this respect, the choice to appoint a technocratic

210 

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government, not only to take the blame for retrenchment but also to claim credit for potentially good choices, could be either an admission by the parties that they are not as prepared as technocrats or a final escape from the burden of responsibility that will surely deserve further investigation. We may wonder as well whether the budget is a suitable venue for implementing public policy, and I believe it is not, for a few reasons. On the one hand, the privilege of the budget law lies in the fact that it is constitutionally protected, demanding precise elements and a specific, reinforced procedure for its approval, which assists in safeguarding the content of the budget itself. In this respect, if for a number of reasons the budget law ends up being a normal law subject to the same—or worse—dynamics and confusion of an ordinary law, its higher value loses meaning. Today, the parliament is compelled to approve the alleged most important document containing its political orientation and policy objectives without even knowing the contents of the budget itself (Caterina 2019). This happens in a context where there does not seem to be any single authority that actually protects the opposition. Not even the Constitutional Court (which a part of the opposition turned to during the 2019 manovra) took up the defence of the parliament, acquitting the government and its conduct.6 Rejecting the admissibility of the appeal, the Court de facto created a precedent which could be exploited to justify—again—the approval without discussion in a House of the parliament simply because the other one has analysed part of the document (Curreri 2019). That seems a paradox considering the Italian symmetrical bicameralism, but it actually happened after that precedent. This is consistent with the charges against the new role of the parliament, which has become merely a venue for the registration of the majority’s choices (Luciani 2019: 43). Evidently, this attitude completely detaches the polity from the long-term 6  More precisely, some of the PD senators resorted to the Constitutional Court because of the extreme shrinking of the timing accorded to the Chambers for the analysis of the budget: a matter that basically concerns the conflict of powers between branches of the state. With a judgement that raised a few doubts and critiques by experts of parliamentary and constitutional law (among others Bergonzini [2019]; Caterina [2019]; Di Cosimo [2019]; Curreri [2019]), the Court stated that despite ‘the contraction of the parliamentary session that became necessary because of specific contextual demands, stabilised parliamentary practices, and new procedural rules […] that hastened the works at the Senate, also because of the need to avoid the provisional budget as specified in the Constitution and to respect the European limits’ (own translation), art. 72 of the Constitution cannot be evoked in contrast to the prerogatives of each Chamber, whose constitutional autonomy is guaranteed by the Constitution itself (sent. 17/2019).

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needs and social demands of the citizens, adding cascading problems for representative democracy and the parliamentary system, where the parliament should favour the democratic debate but it is no longer able to do so. In fact, what stands out egregiously is the mounting suffering of the balance of state powers, accompanied by the critical question about the role of the opposition and how to protect them against any potential push of the majority. Additionally, the bounded rationality and short-term perspective of political actors who merely seek to be re-elected stand out as a major obstacle to the chances of implementing public policies through the annual budget. The budget is probably no longer the proper venue for executing the electoral mandate through the implementation of public policies. On the other hand, and beyond the Italian case, the expansion of the state that began after World War II had considerable consequences for the policy choices of governments (Webber and Wildavsky 1986), burdened by their tendency to ‘lose control’ (Verzichelli 1999: 20) of national accounts because of the intensified worldwide economic competition. Developed countries tried to confront the rise of the public deficit during the 1970s, mostly with fiscal policy measures or by reducing public expenditure (Peters 1991). Later, globalisation—if it has not actually brought about a consistent ‘retreat of the state’ (Strange 1996; Swank 2002; Schulze and Ursprung 1999; Garrett 1998)—at least transformed the conditions under which governments draw up the economic policy (Cohen 1996; Scharpf 2000). In Europe, the substantial shift towards fiscal restraint emerged more insistently from the Maastricht Treaty and was further worsened by the recent Eurozone crisis which more severely fostered the growth of public debt and budget deficit (Attali 2010; Posner and Blöndal 2012). The recession has explosively shown the pitfalls of representative democracy. The shortcoming arose from the lack of ability to find an optimal synthesis between the representative venues (where the economic and budget policy is performed) and international rules which most of the time appear cloudy and ambiguous. Thus, the blurred order that limits countries is not the one ‘imposed’ by the European Union. In fact, the economic requirements it guards serve mainly to protect countries against market speculations because of their own public debt (Pisaneschi 2019). The insufficiently regulated financial markets are a serious problem. With this tension underway, people’s stances need to be represented through adequate policy instruments within a context that looks like Schmidt’s ‘politics without policy’ (2006).

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As a matter of fact, as mentioned in the Introduction, the European continent is trapped in a vicious circle. While raising taxes7 is increasingly damaging for policy-makers and not a viable option because of the ‘decline of taxability’ (Pierson 2002; Streeck 2014), countries have already reached a very high level of public debt which weighs heavily on future generations and their chances to direct public policies and choices. As mentioned earlier in the Conclusion, institutional frictions but also cognitive limits have surely been responsible for the poor management of countries’ budget and economic policy, constraining the room to manoeuvre of decision-­ makers. These boundaries stand out profoundly, especially when times of crisis further restrict the range of possible choices. In such moments, decisions are trapped into the present pattern, reinforced by both types of friction. If and only if decision-makers are able to take advantage of the window of opportunity that opens up in a moment of crisis, it is possible to break that vicious circle. With respect to the budget policy, up until the pandemic, that also seemed to be rather a policy of constrained choices.

8.6   Ideas and Change Today more than ever we talk about change. Even the most conservative party promises to engage in a deep process of change; no one declares its will to keep things as they are or even to slightly adjust them (Harari 2017). And yet, that promise always results, in contrast, in tiny adjustments, if not in the total immobility of the status quo. It is that immobility that leads society to crisis, as we do not adapt collective choices and policies moderately and rationally as soon as an issue emerges. Then, a shock confronts our past myopic choices. It is necessary to make the change, not wait until it is too late. Despite the amount of evidence that points towards that solution, decision-makers still keep failing. The management of the recent pandemic crisis showed no sign of improvement at the very beginning, however the policy solutions adopted to face the Eurozone crisis and the COVID-19 and its consequences were largely different. Whereas after the Eurozone crisis, the European Commission prescribed severe austerity measures and budget cuts, the pandemic crisis changed the perspective and approach. In fact, only this last shock seems to have brought about a ‘third order change’ (Hall 1993) 7  Here, we refer to personal income taxes especially on low- and medium-income earners, not to wealth, inheritance, estate and other kind of taxes, nor to taxes on very high incomes.

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that modified the policy paradigm in favour of European solidarity, but it is probably too soon to affirm whether what seems to be a new paradigm will be powerful enough to remain in place after the crisis is over. This change was possible thanks to the appearance of a new policy idea, which has come about after decades of austerity-oriented and fiscal sustainability approaches (Karremans and Cavalieri forthcoming). In this context, constraints are so many, so powerful and so intrusive that the space for the possible seems to have dissolved. However, the European Union put at the disposal of Member States a huge quantity of funds, so it appeared that limits were lower in a way and the range of solutions expanded. Potentially, with this injection of liquidity, parties can try to be responsive. Now, the question is: in a context of declining party membership, increasing popular disenchantment, reduced scope of electoral competition in policy determination (Mair 2011), lessened electoral role of class position and growing electoral volatility (Dalton 1996), to whom should parties be responsive? Parties need to reconstruct their social ground and constituency, and turn to long-term citizens’ needs while granting future generations the possibility to develop their own policies and choices. Meanwhile, the European Union is setting the path, asking countries to implement specific, often long-term, policies while they continue to monitor Member States. All things considered, it seems that in many countries, at the national level, what is really lacking is a policy idea about the future. The EU is to some extent trying to take care of this. As mentioned at the beginning of the book, crisis is a moment of evaluation, a moment of choice forced by an unexpected necessity, which can stimulate profound reforms and give new life-blood to the whole political system, if supported by policy ideas to recoup intellectual, moral and motivational resources.

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Appendix A

© The Author(s), under exclusive license to Springer Nature Switzerland AG 2023 A. Cavalieri, Italian Budgeting Policy, https://doi.org/10.1007/978-3-031-15447-8

217

Table A.1  Main aggregates of national accounts in Italy (1980–2021) Year

GDP

GDP growth

Revenues (% GDP)

Expenditure (% GDP)

Fiscal balance (% GDP)

1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021

1,064,875.76 1,070,804.35 1,072,471.96 1,082,392.99 1,115,002.20 1,144,226.53 1,175,233.65 1,211,277.89 1,260,080.63 1,301,063.45 1,326,856.42 1,345,949.66 1.355.678,90 1,344,358.94 1,372,244.37 1,409,785.85 1,427,790.86 1,453,959.64 1,478,865.42 1,502,422.82 1,558,738.75 1,587,764.63 1,591,759.49 1,594,060.87 1,618,016.72 1,632,312.53 1,663,296.80 1.687.923,45 1,670,937.19 1,581,016.92 1,607,896.95 1,618,222.92 1,571,292.77 1,543,250.26 1,544,084.37 1,557,444.73 1,574,198.80 1,599,152.58 1,618,580.97 1,626,678.44 1,479,852.01 1,578,061.47

0.56 0.16 0.93 3.01 2.62 2.71 3.07 4.03 3.25 1.98 1.44 0.72 –0.84 2.07 2.74 1.28 1.83 1.71 1.59 3.75 1.86 0.25 0.14 1.50 0.88 1.90 1.48 –1.01 –5.38 1.70 0.64 –2.90 –1.78 0.05 0.87 1.08 1.59 1.21 0.50 –9.03 6.64

34.40 34.40 37.30 39.40 38.10 37.90 38.90 38.60 39.70 40.50 41.80 43.00 45.20 46.60 44.70 44.77 45.20 46.93 45.57 45.80 44.57 44.40 44.00 44.30 43.73 43.47 44.67 45.87 45.70 46.33 45.97 45.65 47.70 48.10 48.05 47.85 46.70 46.30 46.20 47.00 47.50 48.30

41.40 45.30 47.30 49.50 49.60 50.30 50.80 50.10 50.80 51.90 53.30 54.30 55.60 56.60 53.80 52.03 51.90 49.80 48.50 47.57 46.07 47.63 46.97 47.67 47.23 47.60 48.20 47.33 48.33 51.60 50.33 49.15 50.70 51.00 51.05 50.40 49.10 48.80 48.40 48.50 57.10 55.50

–7.00 –10.90 –10.00 –10.10 –11.50 –12.40 –12.00 –11.50 –11.00 –11.40 –11.40 –11.40 –10.40 –10.00 –9.10 –7.30 –6.77 –2.90 –2.93 –1.77 –1.50 –3.23 –2.97 –3.37 –3.53 –4.20 –3.50 –1.43 –2.67 –5.27 –4.33 –3.55 –2.90 –2.90 –3.00 –2.60 –2.40 –2.40 –2.20 –1.50 –9.60 –7.20

Primary balance Debt (% GDP) (% GDP) –2.50 –5.80 –3.40 –2.30 –3.10 –4.00 –3.20 –3.60 –2.80 –2.30 –1.40 0.00 1.80 2.60 2.30 4.00 4.47 6.30 4.90 4.70 4.67 2.93 2.53 1.67 1.10 0.33 1.00 3.37 2.33 –0.77 0.00 1.10 2.25 1.90 1.60 1.55 1.50 1.40 1.40 1.90 –6.10 –3.70

74.40 80.50 84.50 88.60 90.50 93.10 94.70 98.00 105.20 115.60 121.80 119.27 118.78 116.22 113.27 112.22 107.77 107.48 104.67 103.46 103.00 104.78 105.25 102.39 104.96 115.08 117.86 118.10 124.92 130.75 133.96 134.01 134.80 134.20 134.40 134.30 155.60 150.80

Source: Eurostat (https://ec.europa.eu/eurostat/web/main/data/database, viewed on 3/10/2022); ISTAT (https://seriestoriche.istat.it/index.php?id=1&no_cache=1&L=1&tx_usercento_centofe%5Bcate goria%5D=42&tx_usercento_centofe%5Baction%5D=show&tx_usercento_centofe%5Bcontroller%5D=C ategoria&cHash=7060147aab63856c2c2eab7d79562b81, viewed on 3/10/2022) Note: GDP is expressed in million € and controlled for inflation; revenues, expenditure, fiscal balance and primary balance are expressed as percentage of the GDP; primary balance is the fiscal balance net of interest paid. Eurostat covers the period 1995–2020; ISTAT ESA95 covers the period 1980–2010; ISTAT ESA2010 covers the period 1995–2015. Values in the table are the mean of those available from the three datasets, while the time series is filled with values from a single source of data when the others are not available

  Appendix A 

219

Table A.2  Dimensions of the index of executive planning Index of executive planning (0–15) Constitutional constraint

0 = No constitutional constraint 1 = Broad constitutional constraint (planned by L. 468/1978) 2 = Specific constitutional constraint (introduced by L. Cost. 1/2012) Legal enforcement overseeing 0 = No legal enforcement in case of violation potential violation of the balanced 1 = Specific mechanism to punish the violation budget rule Zero-based budget 0 = Lack of norms that try to overcome the standard of incremental budgeting 1 = Presence of norm on the zero-base budgeting (L. 243/2012) Agenda-setting power of the 0 = No power of agenda-setting at all Minister of Finance 1 = Limited power constrained by the Prime Minister and/or other core executive actors (L. 362/1988) 2 = Structural power of agenda-setting (L. 94/1997) Autonomous decision-making 0 = No power of change spending authorisations power of the Minister of Finance 1 = Possibility to change spending authorisations already decided by the parliament within the same programme (DL. 112/2008) 2 = Possibility to autonomously cut spending authorisations (L. 163/2016) Budget norms (broad or specific 0 = No regulation spending items)a 1 = Presence of a general regulation on governmental role over spending item (L. 62/1964) 2 = Specific regulation for spending items (L. 468/1978) Structure of negotiations in 0 = No rules cabinet 1 = Sort of ‘decalogue’ on negotiation within the cabinet (L. 362/1988) 2 = Specific regulations on negotiation in cabinet (L. 163/2016) Elements included in the budget 0 = Absence of legislative requirements documents presented to the 1 = General budget priorities and mid-term (3 years) legislature fiscal policy objectives (L. 362/1988, Public Finance Decision) 2 = Long-term budget priorities and fiscal policy objectives Mandatory financial backing 0 = No obligation to specify financial backing assets in case of expenditure deviations 1 = Obligation to state financial backing assets This is derived by drawing upon a study by Lienert (2005), who applied the same classification

a

1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021

Year

1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 2 2 2 2 2 2 2 2 2 2

0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

Constitutional Legal constraint enforcement of BBR 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 1 1 1 1 1 1 1 1 1 1

ZBB

1 1 1 1 1 1 1 1 1 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2

0 0 0 0 0 0 0 0 0 0 0 1 1 1 1 1 1 0 0 0 0 0 0 0 2 2 2 2 2 2

2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2

1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 2 2 2 2 2 2

Agenda-setting Autonomous Budget Negotiation power of Minister decision-making power norms in cabinet of Finance of Minister of Finance

Table A.3  Index of executive planning (1992–2021)

1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 2 2 2 2 2 2 2 2 2 2 2

Budget and fiscal objectives before the legislature 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 1 1 1 1 1 1

Mandatory financial backing 6 6 6 6 6 6 6 6 6 7 7 8 8 8 8 8 8 7 7 8 10 10 10 10 14 14 14 14 14 14

SUM

220  Appendix A

  Appendix A 

221

Table A.4  Dimensions of the index of legislative approval Index of legislative approval (0–15) Budget session

0 = No formal budget session 1 = Formal budget session limiting the time for spending decisions (L. 468/1978) Limits to bicameralism 0 = No limitation 1 = Limitations to bicameralism by the budget session Committee role 0 = Screening process within the committee according to the usual legislative procedure 1 = Dedicated screening within the committee with additional technical requirements Amendment limitation 0 = No limitation 1 = Vague limitation subject to general norms (L. 468/1978) 2 = Specific limitation on budgetary norms Leverage for amendment 0 = Time limit for the presentation which presentation constrains the majority 1 = Possibility to present amendments at any time of the budgetary session Amendment off-setting 0 = No power of the President of the Chambers to withdraw amendments (L. 468/1978) 1 = Power enforceable only in a specific moment of the budgetary cycle 2 = Power enforceable during the whole budgetary session Re-proposal of amendment discarded 0 = Admissible by the committee 1 = Not admissible Budget amendment can lead to fall 0 = No of the government 1 = Yes Possibility to introduce other 0 = Prohibition for the government to introduce financial measures besides the budget other financial measure exploiting its legislative power 1 = Possibility just to present financial backing assets attached to the budget law 2 = Possibility without specific boundaries to the contents Maxi-amendment 0 = Non-use 1 = Use of maxi-amendment(s) attached to the budget 2 = Use of maxi-amendment that entirely replaces the budget law Vote on total size of the budget 0 = No 1 = Yes (L. 208/1999)

Budget session

1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1

Year

1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021

0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 1 1 1

Limit to bicameral

1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1

Committee role

1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1

Amendment limitation

0 0 0 0 0 0 0 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1

Amendment presentation

Table A.5  Index of legislative approval (1992–2021)

1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1

Amendment off-setting

1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1

Amendment re-proposal

0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

Fall of government because of amendment 1 0 0 0 1 0 0 0 0 0 0 1 1 1 1 1 2 2 2 2 2 2 2 2 2 2 2 2 2 2

Other financial measures

0 0 0 1 1 1 1 1 1 1 1 1 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2

Maxiamendment

0 0 0 0 0 0 0 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1

Vote on all budget

6 5 5 6 7 6 6 8 8 8 8 9 10 10 10 10 11 11 11 11 11 11 11 11 11 11 11 12 12 12

SUM

222  Appendix A

  Appendix A 

223

Table A.6  Dimensions of the index of European external constraint Index of European external constraint (0–15) Legal base of supranational requirements

Character of the requirements

Possibility to deviate from the supranational parameters

Supranational monitoring as ex ante check Supranational monitoring as ex post check Supranational monitoring to the whole budgetary process

0 = No legal base 1 = Presence of supranational requirements with macro-economic guidelines for convergence (Maastricht Treaty) 2 = Effective presence of macro-economic guidelines (SGP) 3 = Pre-set common timeline for economic coordination and budgetary discipline focusing on long-term objectives (European Semester) 4 = Common budgetary objectives (Fiscal Compact) 0 = No requirements 1 = Convergence of the budgetary process on common parameters (Maastricht Treaty) 2 = General binding requirements whose disregard brings an early warning procedure (SGP) 3 = Binding requirements including the analysis of national public expenditure (Six-Pack) 4 = Binding requirements including the analysis of long-term draft plans and of consistency with previous recommendation (Two-Pack) 5 = Binding requirements including the approval of national reforms by the European Commission before the implementation (NGEU) 0 = Possibility to deviate and activation of the general escape clause (NGEU) 1 = Possibility to deviate and activation of the ‘unusual events clause’ 2 = Possibility to deviate (‘unusual events clause’ and ‘general escape clause’) but no activation of either the two 3 = No possibility to deviate 0 = No 1 = Yes 0 = No 1 = Yes 0 = No 1 = Yes

Legal base of supranational requirements

1 1 1 1 1 1 1 2 2 2 2 2 2 2 2 2 2 2 3 3 4 4 4 4 4 4 4 4 4 4

Year

1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021

1 1 1 1 1 1 1 2 2 2 2 2 2 2 2 2 2 2 2 3 3 3 4 4 4 4 4 4 5 5

Character of the requirements 3 3 3 3 3 3 3 3 3 3 3 3 3 3 3 3 3 3 3 2 2 2 2 2 2 1 2 1 0 0

Possibility to deviate from supranational parameters 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 1 1

Supranational monitor as ex ante check

Table A.7  Index of European external constraint (1992–2021)

1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1

Supranational monitor as ex post check

0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 1 1 1 1 1 1 1 1 1 1 1

Supranational monitor of the whole budgetary process

6 6 6 6 6 6 6 8 8 8 8 8 8 8 8 8 8 8 9 10 11 11 12 12 12 11 12 11 12 12

SUM

224  Appendix A

Government

Amato I Ciampi Berlusconi I Dini Prodi I Prodi I D'Alema I D'Alema II Amato II Berlusconi II Berlusconi II Berlusconi II Berlusconi II Berlusconi III Prodi II Prodi II Berlusconi IV Berlusconi IV Berlusconi IV Monti Monti Letta Renzi Renzi Renzi Gentiloni Conte I Conte II Conte II Draghi

Year

1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021

305 377 251 487 886 886 427 126 411 1412 1412 1412 1412 389 722 722 1287 1287 1287 529 529 300 1024 1024 1024 536 461 527 527 516

N. days in office 123 70 52 78 186 186 93 31 65 167 167 167 167 29 110 110 238 238 238 52 52 41 106 106 106 51 130 143 143 107

N. conflicts of the gov 67 70 52 78 51 72 11 85 45 15 34 64 42 27 40 58 39 76 63 4 48 34 31 43 32 49 42 49 94 107

N. conflicts in the year 11 20 7 24 16 11 2 5 3 0 4 9 7 3 12 3 4 5 3 2 5 4 1 1 2 4 7 26 3 15

N. conflicts over the budget in the year 40.33 18.57 20.72 16.02 20.99 20.99 21.78 24.60 15.82 11.83 11.83 11.83 11.83 7.46 15.24 15.24 18.49 18.49 18.49 9.83 9.83 13.67 10.35 10.35 10.35 9.51 28.20 27.13 27.13 20.74

16.42 28.57 13.46 30.77 31.37 15.28 18.18 5.88 6.67 0.00 11.76 14.06 16.67 11.11 30.00 5.17 10.26 6.58 4.76 50.00 10.42 11.76 3.23 2.33 6.25 8.16 16.67 53.06 3.19 14.02

Degree of Degree of coalitional coalitional conflict conflict on the budget

Table A.8  Coalitional conflicts and conflicts over the budget by year and government (1992–2021)

  Appendix A 

225

226 

Appendix A

Table A.9  Coding schemes of budget functions (1992–2021) Functional categories (1992–1997) I and II level COFOG (1998–2021) 1—General administration 2—National defence 3—Justice 4—Public order and security 5—International relations 6—Education and culture 7—University and research 8—Housing 9—Labour and pensions 10—Welfare/social services 11—Health 12—Transport and communication 13—Agriculture and food 14—Manufactory and commerce 15—Development of underutilised areas 16—General economic affairs 17—Local and regional finance 18—Civil defence 19—Special funds (not allocated in advance) 20—Interests on public debt 21—General costs (not otherwise classified)

1—General public services 1.1—Executive and legislative organs, financial, fiscal, external affairs 1.2—Foreign economic aid 1.3—General services 1.4—Basic research 1.5—R&D on general public services 1.6—General public services n.e.c 1.7—Public debt transactions 1.8—Transfers of a general character between different levels of government 2—Defence 2.1—Military defence 2.2—Civic defence 2.3—Foreign military aids 2.4—R&D on defence 2.5—Defence n.e.c. 3—Public order and safety 3.1—Police services 3.2—Fire-protection services 3.3—Law courts 3.4—Prisons 3.5—R&D on public order and safety 3.6—Public order n.e.c. 4—Economic affairs 4.1—General economic, commercial and labour affairs 4.2—Agriculture, forestry, fishing and hunting 4.3—Fuels and energy 4.4—Mining, manufacturing and construction 4.5—Transport 4.6—Communication 4.7—Other sectors 4.8—R&D on economic affairs 4.9—Economic affairs n.e.c 5—Environmental protection 5.1—Waste management 5.2—Waste water management 5.3—Pollution abatement 5.4—Protection of biodiversity and landscape (continued)

Table A.9 (continued) Functional categories (1992–1997) I and II level COFOG (1998–2021) 5.5—R&D on environmental protection 5.6—Environmental protection n.e.c. 6—Housing and community amenities 6.1—Housing development 6.2—Community development 6.3—Water supply 6.4—Street lighting 6.5—R&D on housing and community amenities 6.6—Housing and community amenities n.e.c. 7—Health 7.1—Medical products, appliances and equipment 7.2—Outpatient services 7.3—Hospital services 7.4—Public health services 7.5—R&D on health 7.6—Health n.e.c. 8—Recreation, culture and religion 8.1—Recreational and sporting services 8.2—Culture services 8.3—Broadcasting and publishing services 8.4—Religious and other community services 8.5—R&D on recreation, culture and religion 8.6—Recreation, culture and religion n.e.c. 9—Education 9.1—Pre-primary and primary education 9.2—Secondary education 9.3—Post-secondary non-tertiary education 9.4—Tertiary education 9.5—Education not definable by level 9.6—Subsidiary services to education 9.7—R&D on education 9.8—Education n.e.c. 10—Social protection 10.1—Sickness and disability 10.2—Old age 10.3—Survivors 10.4—Family and children 10.5—Unemployment 10.6—Residences 10.7—Social exclusion n.e.c. 10.8—R&D on social protection 10.9—Social protection n.e.c. Source: La nuova classificazione del Bilancio dello Stato e la traduzione in italiano della COFOG, S. Carobene—ISTAT, Dipartimento di Contabilità Nazionale, n. 13/1999 (available online: https://www.istat.it/it/files//2011/01/cofog.pdf)

3.08 0.65 11.00 6.00 0 –9.03

4.38 4.12 18.00 8.00 10.42 0.88

Median

Crisis

Ideological alternation

Technocratic government

Yes No Total

No Partial Complete Total

Yes No Total

Independent and control variables: ordinal and dichotomous

Parliamentary fragmentation Government ideological polarisation Budgetary process centralisation EU external constraint Coalitional conflict on budget GDP growth

Min

Independent and control variables: numerical

509 1063 1572

320 617 635 1572

168 1404 1572

N

4.61 3.55 19.41 9.47 13.84 0.39

Mean

Table A.10  Summary statistics of the independent and control variables

32.4 67.6 100

20.4 39.2 40.4 100

10.7 89.3 100

%

7.88 6.50 26.00 12.00 53.06 6.64

Max 1.28 1.54 4.25 1.93 13.41 2.96

Sd

1572 1572 1572 1572 1572 1508

N

228  Appendix A

  Appendix A 

229

Table A.11  Quantile regression results of the four models (dependent variable in absolute value)

15th percentile Constant Parliamentary fragmentation Government ideological polarisation Budgetary process centralisation EU external constraint Crisis Conflict over the budget Technocratic government Partial ideological alternation Complete ideological alternation GDP growth 40th percentile Constant Parliamentary fragmentation Government ideological polarisation Budgetary process centralisation EU external constraint Crisis Conflict over the budget Technocratic government Partial ideological alternation Complete ideological alternation GDP growth 60th percentile Constant

Model 1 Testing hypotheses

Model 2 Domestic factors

Model 3 External factors

Model 4 Full

0.76 (3.14) –0.04 (0.35)

1.62 (2.77) –0.06 (0.29)

0.58 (1.55) –

3.68 (5.32) –0.20 (0.68)

–0.11 (0.27)

–0.41 (0.32)

–

–0.36 (0.36)

0.18 (0.16)

0.06 (0.08)

–

0.18 (0.19)

–0.30 (0.44)

–

0.02 (0.16)

–0.40 (0.47)

0.53 (0.73) –

– 0.00 (0.02)

0.57 (0.69) –

0.05 (1.55) 0.00 (0.03)

–

1.44 (1.12)

–

1.61 (1.25)

–

0.13 (1.01)

–

–0.05 (1.47)

–

–0.67 (1.16)

–

–1.09 (1.32)

–

–

–0.01 (0.11)

0.03 (0.17)

3.58 (4.23) 0.64 (0.47)

7.44 (3.72)* 0.24 (0.40)

8.85 (2.07)*** –

12.59 (7.17)* 0.22 (0.91)

–0.68 (0.38)†

–1.04 (0.44)**

–

–1.04 (0.48)*

–0.02 (0.22)

0.60 (0.12)

–

0.09 (0.25)

0.14 (0.60)

–

–0.39 (0.22)†

–0.47 (0.64)

2.10 (1.01)* –

– 0.03 (0.03)

1.10 (0.98) –

1.87 (2.06) 0.00 (0.05)

–

3.60 (1.48)**

–

2.30 (1.66)

–

–1.64 (1.39)

–

–3.09 (2.01)

–

–1.52 (1.55)

–

–3.34 (1.78)†

–

–

–0.10 (0.14)

–0.14 (0.22)

12.28 (6.15)*

16.96 (5.08)***

17.38 (2.69)***

21.46 (9.92)†

(continued)

230 

Appendix A

Table A.11 (continued)

Parliamentary fragmentation Government ideological polarisation Budgetary process centralisation EU external constraint Crisis Conflict over the budget Technocratic government Partial ideological alternation Complete ideological alternation GDP growth 85th percentile Constant Parliamentary fragmentation Government ideological polarisation Budgetary process centralisation EU external constraint Crisis Conflict over the budget Technocratic government Partial ideological alternation Complete ideological alternation GDP growth

Model 1 Testing hypotheses

Model 2 Domestic factors

Model 3 External factors

Model 4 Full

0.62 (0.68)

–0.01 (0.56)

–

1.04 (1.26)

–0.84 (0.54)

–1.44 (0.59)**

–

–1.04 (0.68)

–0.09 (0.29)

0.12 (0.16)

–

–0.01 (0.36)

0.14 (0.75)

–

–0.59 (0.28)*

–0.62 (0.89)

6.00 (1.61)*** –

– –0.08 (0.04)†

5.11 (1.59)*** –

7.80 (2.87)** –0.05 (0.07)

–

3.64 (2.05)†

–

–1.11 (2.18)

–

–0.10 (1.97)

–

–6.05 (2.83)*

–

0.17 (2.09)

–

–4.74 (2.45)*

–

–

–0.05 (0.20)

–0.46 (0.30)

41.83 (23.18)† 0.04 (2.60)

43.28 (18.07)** –0.91 (1.91)

49.85 (14.78)*** 51.79 (31.42)† – 3.01 (3.42)

–4.47 (2.44)†

–2.32 (2.61)

–

–3.49 (2.77)

–0.08 (1.44)

0.85 (0.55)

–

–0.49 (1.56)

1.69 (3.87)

–

–0.84 (1.52)

1.11 (4.19)

13.49 (6.75)* –

– –0.36 (0.16)*

11.51 (7.40) –

19.01 (8.91)* –0.26 (0.23)

–

–3.72 (6.40)

–

–

2.26 (8.73)

–

–14.77 (5.51)** –15.75 (9.98)

–

7.81 (9.93)

–

–

–7.83 (10.54) –0.47 (0.87)

–1.47 (1.00)

Note: statistical significance with p–value < 0.1 (†), 0.05 (*), 0.01 (**), 0.001 (***). The first model tests the main hypotheses using those initially identified as the most important explanatory variables. The second model adds some of the controls, including only variables acting at the domestic level. The third one instead looks only at exogenous factors. The fourth model considers all the predictors at the same time

  Appendix A 

231

1.1   Logistic Regression In order to confirm the results of Sect. 5.3, I re-estimate the model using an alternative measure of budgetary changes. Scholars have studied conditions for the occurrence of punctuations establishing cutoff points from the distribution that sets the difference between punctuations and minor adjustments, then transformed the continuous measure of budget modifications into a categorical (Robinson et al. 2007) or dichotomous variable (Epp 2018; Robinson et al. 2014). Borrowing from these studies, I define as a punctuation all those changes crossing the 10th and 90th percentiles, corresponding to –29.91 and +39.22 per cent, respectively (see Fig. 5.6, which has the same shape). After assigning value 1 (punctuation) to 316 cases beyond the thresholds and 0 otherwise, I re-estimate the model using a logistic regression. To review, I hypothesised that budget changes would be more severe as budgetary process centralisation increases and during periods of sudden shock, allowing the government to pursue its spending preferences. In contrast, a higher number of veto players in parliament, more ideological distance between governing parties and more intrusive European constraint would reduce the occurrence of punctuations. Using a dichotomous dependent variable, I tested whether for every unit increase in the predictor variable the likelihood of a punctuation happening rises. Results match those of the quantile regression. It is important to remember that we are still dealing only with the size of budgetary changes, regardless of the direction they take. The logit model informs us that external events do have a positive impact on the occurrence of punctuations. The marginal effect indicates that the likelihood of a major change rises by 9.3 per cent in the case of a sudden exogenous shock. This is by far the most powerful explanatory factor, although the difference between a technocratic government and a political one matters as well. As in the model presented in Table A.11, technocrats have a negative effect on the occurrence of budget upheavals and reduce the chances of punctuations by 8.7 per cent. Conflicts about the budget and GDP growth also have a negative effect, although their impact is rather small. Yet, conflicting governments that argue a lot during the budgetary process are less likely to succeed in substantially changing the budget. Finally, when the GDP rate improves, the probability of a punctuated modification drops by 1 per cent, which may signal that during periods of favourable economic

232 

Appendix A

conditions, the budget might be increased without producing excessive large expansions. Altogether, the Wald χ2 test reveals that the whole model is significant. To summarise, using a continuous dependent variable of the magnitude of budget changes or a dichotomous dependent variable specifying whether the adjustment is a punctuation or not yields similar results. Table A.12  Logistic regression results of the full model Variable

Model 1 Logit

Model 1 Marginal effects

Constant Parliamentary fragmentation Government ideological polarisation Budgetary process centralisation EU external constraint Crisis Conflict over the budget Technocratic government Partial ideological alternation Complete ideological alternation GDP growth

–1.76 (1.20) 0.09 (0.15) –0.03 (0.08) –0.03 (0.04) 0.08 (0.10) 0.56 (0.33)† –0.01 (0.01)* –0.67 (0.33)* –0.04 (0.32) 0.08 (0.29) –0.07 (0.03)*

– 0.015 –0.005 –0.005 0.013 0.093 –0.002* –0.087* –0.007 0.013 –0.011*

Pseudo R2 Wald χ2 test

0.018 25.117**

Note: statistical significance with p-value < 0.1 (†), 0.05 (*), 0.01 (**), 0.001 (***)

  Appendix A 

233

Table A.13  Quantile regression results of the four models (dependent variable in real value)

10th percentile Constant Parliamentary fragmentation Government ideological polarisation Budgetary process centralisation EU external constraint Crisis Conflict over the budget Technocratic government Partial ideological alternation Complete ideological alternation GDP growth 30th percentile Constant Parliamentary fragmentation Government ideological polarisation Budgetary process centralisation EU external constraint Crisis Conflict over the budget Technocratic government Partial ideological alternation Complete ideological alternation GDP growth 70th percentile

Model 1 Testing hypotheses

Model 2 Domestic factors

Model 3 External factors

Model 4 Full

–104.27 (12.62)*** 4.81 (1.53)***

–94.13 (14.32)*** –58.28 (8.74)*** –149.13 (26.65)*** 6.03 (1.95)***

–

8.85 (3.04)**

4.94 (1.74)**

4.30 (2.13)*

–

4.40 (2.58)†

1.02 (0.68)

1.42 (0.44)***

–

1.69 (0.85)**

2.03 (1.80)

–

3.44 (0.80)***

3.18 (1.94)

–13.96 (4.33)*** –

– 0.13 (0.14)

–21.67 (6.05)*** –7.34 (6.00) – 0.23 (0.20)

–

–6.66 (6.93)

–

5.46 (6.14)

–

–8.72 (5.80)

–

–1.74 (6.25)

–

–8.59 (6.70)

–

0.89 (6.16)

–

–

1.85 (0.98)*

1.31 (0.90)

–33.67 (4.82)*** 1.92 (0.53)***

–33.12 (4.65)*** 1.93 (0.50)***

–18.08 (2.49)*** –59.06 (9.66)*** – 4.84 (1.04)***

1.13 (0.46)**

1.92 (0.53)***

–

2.27 (0.60)***

0.41 (0.24)†

0.60 (0.13)***

–

0.65 (0.28)**

0.78 (0.64)

–

1.38 (0.25)***

1.07 (0.75)

–1.82 (1.18) –

– –0.03 (0.04)

–4.01 (1.26)*** –

3.38 (2.21) 0.03 (0.05)

–

–4.68 (1.91)**

–

–0.51 (1.94)

–

1.48 (1.40)

–

–1.59 (2.03)

–

0.13 (1.66)

–

0.21 (1.84)

–

–

0.37 (0.20)*

0.02 (0.26)

(continued)

234 

Appendix A

Table A.13 (continued) Model 1 Testing hypotheses Constant Parliamentary fragmentation Government ideological polarisation Budgetary process centralisation EU external constraint Crisis Conflict over the budget Technocratic government Partial ideological alternation Complete ideological alternation GDP growth 90th percentile Constant Parliamentary fragmentation Government ideological polarisation Budgetary process centralisation EU external constraint Crisis Conflict over the budget Technocratic government Partial ideological alternation Complete ideological alternation GDP growth

Model 2 Domestic factors

Model 3 External factors

Model 4 Full

–32.73 (6.51)*** –19.71 (5.04)*** 3.77 (0.71)*** 2.38 (0.51)***

–2.48 (2.71) –

–42.00 (10.65)*** 6.03 (1.49)***

–0.23 (0.43)

–0.04 (0.51)

–

–0.20 (0.53)

0.40 (0.26)

0.80 (0.16)***

–

0.75 (0.32)**

1.40 (0.68)*

–

0.88 (0.30)**

0.87 (0.75)

2.95 (1.43)* –

– –0.0 (0.04)

–2.378 (1.13)* –

8.24 (3.32)** 0.03 (0.05)

–

1.74 (2.17)

–

0.77 (2.18)

–

–0.09 (1.74)

–

–7.15 (3.15)*

–

–1.59 (1.95)

–

–5.20 (2.60)*

–

–

0.40 (0.16)**

0.09 (0.29)

–81.72 (44.39)† 10.05 (5.67)†

–29.01 (31.18) 6.70 (2.52)**

–7.61 (14.50) –

–67.93 (38.21)† 11.29 (5.07)*

–3.41 (2.55)

0.18 (2.86)

–

–1.37 (2.67)

–1.40 (2.06)

2.77 (0.86)***

–

–1.37 (2.10)

11.85 (4.60)**

–

5.16 (1.82)**

10.21 (5.27)*

4.48 (11.87) –

– –0.53 (0.18)**

–6.39 (6.58) –

12.86 (11.62) –0.23 (0.23)

–

–6.43 (8.06)

–

–9.40 (6.23)

–

–7.48 (15.68)

–

–16.25 (13.93)

–

–5.81 (17.45)

–

–

–5.05 (14.00) 1.42 (0.78)†

–0.13 (1.06)

Note: statistical significance with p-value < 0.1 (†), 0.05 (*), 0.01 (**), 0.001 (***). The first model tests the main hypotheses using those initially identified as the most important explanatory variables. The second model adds some of the controls, including only variables acting at the domestic level. The third one instead looks only at exogenous factors. The fourth model includes all of the independent and control variables

  Appendix A 

235

Table A.14  Index of transformativeness (1993–2022) Law(t–1)/Bill(t) (Chap. 6)

Bill(t)/Law(t) (Chap. 7)

Budget for

Government

Percentage Index of change of total transforma budget tiveness

Percentage change of total budget

Index of transformativeness

1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022

Amato I Ciampi Berlusconi I Dini Prodi I Prodi I D’Alema I D’Alema II Amato II Berlusconi II Berlusconi II Berlusconi II Berlusconi II Berlusconi III Prodi II Prodi II Berlusconi IV Berlusconi IV Berlusconi IV Monti Monti Letta Renzi Renzi Renzi Gentiloni Conte I Conte II Conte II Draghi

– –10.91 12.35 –4.85 –3.08 –0.63 5.87 1.64 –0.05 –0.33 –2.45 –1.62 –2.70 –2.21 –5.27 0.48 –4.96 –2.30 –3.97 1.02 1.45 2.01 2.00 –4.52 0.08 2.48 2.59 2.24 14.90 8.86

–6.79 –0.48 –2.69 –0.10 –0.88 4.92 3.46 6.22 2.10 0.82 1.56 2.24 1.43 0.15 10.00 5.37 –0.20 1.98 0.95 –1.40 1.01 2.16 3.44 2.56 0.007 0.01 0.04 0.009 0 –1.77

0.52 0.04 0.03 0.15 e–2 0.33 16.17 0.02 0.72 1.10 0.20 1.12 0.07 0.23 0.23 0.96 0.15 0.89 e–2 0.07 0.02 0.21 0.34 0.10 0.30 0.11 0.69 e–3 0.17 e–2 0.80 e–3 0.16 e–2 0 0.06

– 4.72 0.76 3.24 0.54 0.36 – 0.92 0.32 15.47 0.23 0.79 0.08 0.49 0.46 0.28 6.71 0.85 0.96 0.44 0.24 0.71 2.65 0.34 0.09 0.02 0.72 0.16 6.87 0.57

Note: in the second column, 1999 has no value because it marks the shift between two different coding schemes, thus it was not possible to compute the index as the number of budget categories diverges between the period 1993–1998 and 2000–2022. The same does not apply to the fourth column, as the index is calculated between documents of the same years, thus the difference between the categorisation does not affect the calculus

Index of transformativeness Min 1st quartile 0.02 0.31 Percentage change of the total budget Min 1st quartile –10.91 –2.70 Bill(t)/Law(t)(Chap. 7) Index of transformativeness Min 1st quartile 0.00 0.02 Percentage change of the total budget Min 1st quartile –6.79 –0.07

Law(t–1)/Bill(t)(Chap. 6) Mean 1.79 Mean 0.28

Mean 0.77 Mean 1.21

Median 0.55 Median –0.05

Median 0.10 Median 0.89

3rd quartile 2.22

3rd quartile 0.32

3rd quartile 2.01

3rd quartile 0.94

Max 10.00

Max 16.17

Max 14.90

Max 15.48

Table A.15  Summary statistics of the index of transformativeness and percentage change of the total budget

236  Appendix A

  Appendix A 

237

Table A.16  OLS regression model (dependent variable: percentage change of the total budget) Percentage change Percentage change law(t–1)/bill(t) (Chap. 6) bill(t)/law(t) (Chap. 7) Constant Parliamentary fragmentation Government ideological polarisation Budgetary process centralisation EU external constraint Crisis Electoral cycle Newly appointed government Days in office Conflict over the budget Technocratic government Partial ideological alternation Complete ideological alternation GDP growth

–1.95 (10.34) – –0.27 (0.97) 0.36 (0.25) – –0.25 (2.41) – –0.98 (2.43) –0.00 (0.00) –0.11 (0.09) –7.25 (3.00)* 5.36 (3.82) 0.57 (3.42) 0.19 (0.40)

2.24 (5.33) –0.01 (0.60) – –0.19 (0.33) 0.35 (0.76) –0.46 (1.62) 1.17 (1.51) – – –0.00 (0.04) –3.87 (1.92)* – – –

Note: statistical significance with p-value 0.05 (*), 0.01 (**), 0.001 (***)

References Epp, Derek A. 2018. The Structure of Policy Change. The Structure of Policy Change. Chicago: University of Chicago Press. Lienert, Ian. 2005. Who Controls the Budget: The Legislature or the Executive? IMF Working Paper No. 05/115. Robinson, Scott E., Carla M. Flink, and Chad M. King. 2014. Organizational History and Budgetary Punctuation. Journal of Public Administration Research and Theory 24 (2): 459–471. Robinson, Scott E., Floun’say Caver, Kenneth J. Meier, and Laurence J. O’Toole. 2007. Explaining Policy Punctuations: Bureaucratization and Budget Change. American Journal of Political Science 51 (1): 140–150.



Appendix B

1.1   Assessment of Major Changes in the Budget Bill and in the Budget Law 1.1.1   Budget Law Overall, in the budget laws of the period 1992–2021, there are fifty-three extreme changes, with percentage change higher than 200 per cent, ranging from a minimum of 202.82 to a maximum of 4,403,350.80 per cent. Different reasons drive these huge modifications that need to be understood in order to decide which of these is worth considering in the analysis and which would lead to misleading results if kept. To figure out the characteristics of those changes, I look in the first place at the trend of each micro-function throughout the whole period, to see whether they are characterised by high variability or an extreme adjustment that occurred only at a specific moment. By doing so, it is possible to identify upheavals that might constitute a real policy change, those that instead are merely sudden peaks and transfers across spending functions. While these last can be more easily detected intersecting the trend of each micro-category inside a macro one, the sudden bloat happening in a few cases may be a symptom of an unexpected necessity to raise funds in a specific sector because of some domestic or external events or, simply, a meaningless growth, for instance, due to modifications in the coding system or procedural processes. The specification between what might constitute a policy © The Author(s), under exclusive license to Springer Nature Switzerland AG 2023 A. Cavalieri, Italian Budgeting Policy, https://doi.org/10.1007/978-3-031-15447-8

239

240 

Appendix B

change and what is instead a meaningless (though extreme) modification is possible after analysing the spending trend of each micro-category which shows such a dramatic spike.1 Singling out these upheavals is the first step to later assessing their actual nature. Out of fifty-three observations showing extreme change, twenty-two have been identified as potential punctuations, which might signify an actual policy change; twenty-five are sudden peaks, mostly the consequence of a dramatic decrease happening the year before, and which return to the previous path right away; the remaining six cases are shifts from one or more spending category to another. This last group includes the temporary transfer of funds from ‘Tertiary education (9.4)’ to ‘Secondary education (9.2)’ and the following repayment after a couple of years, and the shift towards ‘Economic affairs n.e.c. (4.9)’ from ‘Agriculture, forestry, fishing and hunting (4.2)’ that happened in 2007. Another case is the transfer from the categories ‘Sickness and disability (10.1)’, ‘Family and children (10.4)’ and ‘Unemployment (10.5)’ towards ‘Social protection n.e.c. (10.9)’ that occurred in 2009 and 2011. In fact, the last category grew by 284.63 per cent in 2009, when the other three decreased; although those three rose by 353.37, 1157.06 and 4,403,350.8 per cent, respectively, in 2011, and the first one almost cancelled. These changes balance one another and can be removed from the analysis because they would otherwise clearly lead to a misleading interpretation of results. Those large adjustments that establish a new spending pattern have been considered potential punctuations which might lead to policy change. Whereas considerable increases that immediately lose ground have been initially identified as sudden peaks, after an in-­depth review some of them have been re-evaluated as potential punctuations. This is the case, for instance, of the spending function ‘Waste management (5.1)’ in 2008, 2017 and 2021 which grew by 991.16, 283.67 and 583.56 per cent, respectively, following the waste emergency in Campania and Lazio, and the COVID-19 pandemic that demanded a huge increase of the effort for waste disposal; the increase of ‘Foreign economic aid (1.2)’ in 2013 is probably the consequence of the Arab Spring turmoil which started in 2011; the boost of ‘Medical products, appliances and equipment’ (7.1) in 2021, different from the sudden peaks in the same category happened in 2015 and 2017, is the consequence of the immediate necessity of having 1  Despite the considerable drift of expenditure, I refrain for the moment from labelling the changes as actual punctuations, as I am not interested in assessing the nature of change. In fact, the purpose is merely to pull out the huge modifications which might jeopardise the understanding of the overall pattern of budget changes.

Welfare**

Defence Economic affairs Environmental protection Recreation, culture and religion Education General public services Education Education Social protection

Health

Defence

Public order and safety Economic affairs Recreation, culture and religion Environmental protection Economic affairs Environmental protection

1998

2001 2001 2001

2005

2007

2007

2009 2009

2008

2007 2007

2003 2003 2003

2002 2003

2001

Macro-category

Year

4.7—Other sectors 5.2—Waste water management

4.9*—Economic affairs n.e.c. 8.6*—Recreation, culture and religion n.e.c. 5.1—Waste management

3.6*—Public order n.e.c.

7.1—Medical products, appliances and equipment 2.5*—Defence n.e.c.

9.4—Tertiary education 9.8—Education n.e.c. 10.4—Family and children

2.4—R&D on defence 4.8—R&D on economic affairs 5.5—R&D on environmental protection 8.5—R&D on recreation, culture and religion 9.7—R&D on education 1.4—Basic research

Micro-category

136.19 79.23

39.16

937.23 137.53

215.85

623.10

40.58

7322.89 1427.98 3774.86

4.58 2410.30

71.09

142.62 966.91 90.33

22,793.49

Mean

91.07 35.78

31.68

828.52 93.70

53.43

345.06

23.78

7412.43 1392.38 3419.71

3.59 2383.52

63.19

59.50 1016.57 89.81

15,101.15

Median

459.12 136,216.23

67.87

34.35 384.20

1572.90

82.34

311.11

61,403.66 30.30 73.79

17.70 2244.73

435.82

11.71 46.92 19.74

68.09

Mean % change

–3.28 –7.46

–6.74

0 –1.88

0

0

–5.71

0.79 7.23 5.56

–4.73 2.42

–3.51

–0.99 1.28 –1.95

–0.94

Median % change

Table B.1  Budget changes above 200 per cent and related type of change (budget law)

10,324.72 825.29

991.16

295.26 8901.51

36,226.38

1849.6

327.22

1,412,277.79 462.82 333.46

229.47 51,568.95

10,138.65

384.42 989.62 202.82

335.42

% Change

(continued)

Potential punctuation Sudden peak Sudden peak

Shift across Sudden peak

Shift across Sudden peak Potential punctuation Potential punctuation Potential punctuation Sudden peak

Sudden peak Sudden peak

Potential punctuation Sudden peak Sudden peak Potential punctuation Sudden peak

Type

  Appendix B 

241

Housing and community amenities Recreation, culture and religion Education

Social protection General public services Economic affairs

Defence Defence Housing and community amenities Housing and community amenities Housing and community amenities Social protection Social protection Social protection General public services Defence

2009

2009 2010

2011 2011 2011

2013

2011 2011 2011 2013

2011

2011

2010

2009

2009

Macro-category

Year

2.2—Civic defence

10.1—Sickness and disability 10.4—Family and children 10.5—Unemployment 1.2—Foreign economic aid

6.6*—Housing and community amenities n.e.c.

6.2—Community development

4.4—Manufacturing, mining and construction 2.2—Civic defence 2.3*—Foreign military aids 6—Housing and community amenitiesa

8.4—Religious and other community services 9.3*—Post-secondary non-tertiary education 10.9—Social protection n.e.c. 1.3—General services

6.6*—Housing and community amenities n.e.c.

Micro-category

Table B.1 (continued)

1100.07

20,687.86 3774.86 8865.35 932.27

512.35

2244.42

1100.07 641.33 3845.83

5325.20

18,568.95 3527.54

311.02

741.27

512.35

Mean

464.43

22,074.07 3419.71 5124.90 782.87

56.47

1376.81

464.43 822.58 3650.02

4797.06

3514.56 2826.49

417.67

1041.91

56.47

Median

1.95

1.04 5.56 8.05 –4.34

14.70 73.79 191,449.27 20.92 86.91

2.74

5.41

1.95 0 5.27

1.88

2.01 –1.83

0

–0.18

2.74

Median % change

3758.84

41.65

86.91 15.26 21.82

31.57

15.21 21.59

12.62

24.04

3758.84

Mean % change

1216.13

353.37 1157.06 440,3350.8 252.46

72,379.79

801.92

664.86 479.25 407.4

593.39

284.63 520.55

291.03

380.79

13,904.91

% Change

Shift across Shift across Shift across Potential punctuation Sudden peak

Sudden peak

Sudden peak

Sudden peak Sudden peak Potential punctuation

Sudden peak

Shift across Sudden peak

Potential punctuation Sudden peak

Sudden peak

Type

242  Appendix B

Environmental protection Health Economic affairs Health

Social protection

Defence Environmental protection Housing and community amenities Health

Health

Environmental protection Economic affairs

Environmental protection Environmental protection Health

Economic affairs

2014

2015

2016 2017

2017

2018

2020

2022

2021

2021

2019

2017

2017

2014 2015 2015

Macro-category

Year

7.1—Medical products, appliances and equipment 4.3*—Fuels and energy

246.97

5.6—Environmental protection n.e.c. 5.1—Waste management

183.23

40.58

39.16

937.23

79.23

576.44

40.58

422.06

1100.07 39.16

5441.67

576.44 183.23 40.58

79.23

Mean

4.9*—Economic affairs n.e.c.

5.2—Waste water management

7.1—Medical products, appliances and equipment 7.4—Public health services

6.3—Water supply

2.2—Civic defence 5.1—Waste management

7.4—Public health services 4.3*—Fuels and energy 7.1—Medical products, appliances and equipment 10.7—Social exclusion n.e.c.

5.2—Waste water management

Micro-category

49.32

23.78

31.68

167.08

828.52

35.78

470.07

23.78

463.38

464.43 31.68

5875.73

470.07 49.32 23.78

35.78

Median

176.67

311.11

67.87

23.93

34.35

136,216.23

63.36

311.11

16.15

86.91 67.87

49.67

63.36 176.67 311.11

136,216.23

Mean % change

–0.82

–5.71

–6.74

–8.15

0

–7.46

3.76

–5.71

1.42

1.95 –6.74

13.63

3.76 –0.82 –5.71

–7.46

Median % change

2226.90

1430.93

583.56

224.62

373.62

3,011,995.93

537.26

1650.66

415.51

403.66 283.67

814.81

845.59 2022.45 4147.65

120,144.56

% Change

(continued)

Potential punctuation Potential punctuation Potential punctuation Potential punctuation Potential punctuation

Potential punctuation Sudden peak

Sudden peak

Potential punctuation Sudden peak Potential punctuation Potential punctuation

Potential punctuation Sudden peak Sudden peak Sudden peak

Type

  Appendix B 

243

Environmental protection Health

Social protection

2022

2022

10.6—Residences

7.3—Hospital services

5.3—Pollution abatement

Micro-category

111.44

57.76

429.07

Mean

0

0

319.03

Median

100.40

13.77

29.24

Mean % change

0

0

4.55

Median % change

2462.12

377.40

470.77

% Change

Potential punctuation Potential punctuation Potential punctuation

Type

**‘Welfare’ was the name of a macro-category until 1998, before the adoption of the COFOG coding scheme

*Indicates those categories whose financing does not cover the whole period considered. All of them started to be financed with the budget law for 2003 and belong to the categories (except for 2.3, 4.3 and 9.3) classified as ‘n.e.c.’

a This change is the only one affecting a macro-category; therefore, it is not considered in the assessment of micro-categories but it is evaluated later with macro-categories

Note: the column ‘Year’ identifies the budget for the following year, that means, year 1998 identifies the budget issued in 1997 with the forecasts for 1998. (The same is valid for all the other tables)

2022

Macro-category

Year

Table B.1 (continued)

244  Appendix B

  Appendix B 

245

more medical devices to confront the pandemic crisis. Likewise, those huge changes that happened with the budget law for 2022 are considered potential punctuations, although we cannot know at this stage whether their financing is going to last or not. However, as these include categories such as ‘Fuels and energy (4.3)’, ‘Pollution abatement (5.3)’, ‘Hospital services (7.3)’—considerably touched by the emergencies of the last years and on which the European Union has asked Member States to substantially intervene in order to get funds—we suppose these are going to stabilise around higher level of financing after these peaks. At this stage, we have some potential punctuations and a few transfers. Others are spikes where it is not yet clear (after simply detecting them without a deeper investigation) if they represent meaningful changes or not. Without totally disregarding these cases, which would in any case say something about the dynamics of change in the Italian budget, it is crucial to highlight another important point, which affects these modifications in particular. Many of them are indeed very small categories, or even a sort of residual one (n.e.c.), which collect money that does not belong to any other policy area (ISTAT 1999). Summary statistics2 help to shed light on the characteristics of these categories; I also calculate the proportion of expenditure of that large increase over the total expenditure of the same year to point out the importance of each spending programme on the overall budget. I evaluate whether to discard these changes on the bases of three characteristics: (a) whether the median expenditure for the category is lower than € 150 million (given the expenditure for all budget categories, that cutoff point corresponds to the 25th percentile); (b) whether the proportion of expenditure for the category in the year of the sudden peak is lower than 0.03 per cent of the total (given the proportion of expenditure of each category on the total budget of that year, 0.03 per cent again corresponds to the 25th percentile) and (c) whether the yearly percentage change is above the top 1 per cent of the whole distribution of budget changes (whose growth rate is 1201.96 per cent). Figure B.1 places these sudden spikes accordingly. Out of twenty-five cases, twelve exceed the 99th percentile and, with the exception of ‘Basic research (1.4)’ and ‘Civic defence’ (2.2), also show very low values concerning the size of spending. Other cases either constitute a very small proportion of the total budget of that year or have a median expenditure lower than € 150 million. The remaining large changes in the top right circle do not  I look at the median value of these spending categories and median growth instead of the mean value, as this is inevitably affected by the excessive value of a single overblown change. 2

246 

Appendix B

Median < 150m None Proportion < 0.03% Top 1%

1.3 − 2.3 − 4.4 − 4.8 6.2 − 7.4 − 9.3 − 9.8

2.4

3.6 − 8.6

9.7

6.6(2009) 6.6(2011)

4.3 − 4.7

5.2(2009)

5.2(2018) − 8.5 7.1(2015, 2017)

1.4 − 2.2 (2013)

2.2(2011) 2.2(2016)

Fig. B.1  Main characteristics of only sudden peaks (budget law)

belong to any of the three groups, that is they represent a rather sizable part of the budget and their percentage change falls below the top 1 per cent. To review, fifty-three extreme changes surpass the threshold of 200 per cent increase: twenty-two are potential punctuations, six are transfers across categories and twenty-five are sudden peaks. While some of them are worth taking into account to understand and study the evolution of Italian budget policy, others might jar the analysis and would possibly lead to misleading interpretations. This is the reasoning behind the analysis just carried out and the justification for omitting the six cases of transfers, in addition to all the observations overtaking the top 1 per cent of the distribution; incidentally, many of these are residual categories such as those falling into the intersection between the top 1 per cent and the low median. The two observations in the intersection between low median and low proportion are omitted as well, while those cases representing only

  Appendix B 

247

a small size of the budget in that given year and, even more so, those outside the three thresholds are examined more closely. Among the potential punctuations that might be actual policy changes, three cases deserve special attention, namely the categories ‘Defence, not otherwise classified (2.5)’, ‘Waste water management (5.2)’ (2014) and ‘Medical products, appliances and equipment (7.1)’ (2021). The main concern about these is due to the fact that they all come under the top 1 per cent group in the distribution. While it is reasonable to believe that the latter is an actual punctuation because of the pandemic crisis, 5.2 is also below the threshold for the median and the proportion used for the sudden peaks and 2.5 is even a residual function. Thus, these two are ruled out from the study. To conclude, the analysis of the following chapters considers fifteen potential punctuations and eleven sudden peaks. Ultimately, the logic for such an assessment was to identify many notable changes and their characteristics in order to assess whether they seem meaningful (or not) to understanding and studying the overall pattern of budget changes. Discarding the misleading observations reduces the confusion due to several extreme modifications that are simply the consequence of a different classification of the expenditure or meaningless upheavals that occurred because of the cancellation and reimplementation of the programme in two consecutive years. Ultimately, the scrutiny was conducted simply to avoid jeopardising the comprehension of Italian budget policy. 1.1.1.1 Budget Bill As illustrated in Chaps. 4 and 5, we can rely on a twin dataset about the budget bill and the budget law. The former is the document drafted by the government and submitted to the parliament for discussion and approval, where the majority draws up its actual spending preferences before the confrontation with the Chambers. The two, of course, provide different pieces of information, but they are assembled in the same way. What we are interested in and is further developed in Chap. 6 is understanding whether the extreme adjustments present in the budget law have already been decided in the budget law or whether these are the result of the parliamentary process. In order to figure this out, we first need to single out the huge changes happening in the budget bill. The method is the same adopted for scrutinising the budget law and consists of identifying the annual changes above the 200 per cent threshold to see if these are potential punctuations, sudden peaks or transfers across budget categories. Out of sixty-two cases higher than 200 per cent increase, forty-two converge with those of the budget law and obey the same dynamics. Thus, nineteen are discarded and twenty-three are kept (Table B.2).

Social protection Defence Economic affairs Environmental protection

Recreation, culture and religion Economic affairs Environmental protection Education Education General public services Environmental protection

Education Education Health

Social protection Social protection Social protection Social protection Education Defence

Public order and safety Economic affairs Recreation, culture and religion Economic affairs

2000 2001 2001 2001

2001

2004 2004 2005

2005 2005 2005 2005 2006 2007

2007 2007 2007

2009

2002 2002 2002 2003 2004 2004

Macro-category

Year

3.6*—Public order n.e.c. 4.9*—Economic affairs n.e.c. 8.6*—Recreation, culture and religion n.e.c. 4.7*—Other sectors

9.4—Tertiary education 9.8—Education n.e.c. 7.1*—Medical products, appliances and equipment 10.1—Sickness and disability 10.2—Old age 10.4—Family and children 10.7—Social exclusion n.e.c. 9.7—R&D on education 2.5*—Defence n.e.c.

10.4—Family and children 2.4*—R&D on defence 4.8*—R&D on economic affairs 5.5*—R&D on environmental protection 8.5*—R&D on recreation, culture and religion 4.7—Other sectors 5.1—Waste management 9.7*—R&D on education 9.4*—Tertiary education 1.4—Basic research 5.5—R&D on environmental protection

Micro-category

127.29

218.60 947.38 138.86

19,528.74 44,571.30 3562.20 5161.02 4.85 722.57

7014.23 1296.58 108.39

127.29 32.00 4.85 7014.23 2300.23 81.87

71.77

3562.20 158.51 932.89 81.87

Mean

85.04

53.59 829.65 88.53

21,915.01 47,417.87 3361.97 4128.28 3.74 332.80

7223.90 1332.14 23.40

85.04 20.87 3.74 7223.90 2324.45 87.87

63.37

3361.97 59.50 984.08 87.87

Median

461.48

1437.76 30.36 325.44

895.48 14.14 99.29 78.21 15.07 88.73

8693.87 64.87 279.98

461.48 100.59 15.07 8693.87 4346.89 35.10

436.67

99.29 9.97 56.18 35.10

Mean % change

Table B.2  Budget changes above 200 per cent and related type of change (budget bill)

3.68

0.00 0.00 0.00

0.98 1.52 8.94 5.88 –3.33 0.00

0.41 4.53 –2.84

3.68 –0.91 –3.33 0.41 1.28 –2.02

–3.06

8.94 –0.99 1.44 –2.02

Median % change

10,244.50

33,099.58 326.83 7517.87

20,378.66 237.65 405.41 925.55 277.26 2063.14

1220.18 1406.19 411.10

321.52 565.74 262.06 198,831.21 99,996.15 291.17

10,138.65

640.45 397.09 1196.73 429.20

% Change

Sudden peak

Sudden peak Sudden peak Sudden peak Shift across Sudden peak Potential punctuation Shift across Sudden peak Potential punctuation Shift across Shift across Sudden peak Sudden peak Sudden peak Potential punctuation Sudden peak Shift across Sudden peak

Sudden peak Sudden peak Sudden peak Potential punctuation Sudden peak

Type

248  Appendix B

Environmental protection Environmental protection Housing and community amenities Recreation, culture and religion Education

Social protection General public services Economic affairs

Defence Housing

Housing and community amenities Housing and community amenities Social protection Social protection Social protection Defence Defence Health Economic affairs Environmental protection Social protection Social protection

Defence

Health

Social protection

2009 2009 2009

2009 2010 2010

2011 2011

2011

2011 2011 2011 2013 2013 2014 2015 2015 2015 2015

2016

2016

2016

2011

2009

2009

Macro-category

Year

7.1—Medical products, appliances and equipment 10.7—Social exclusion n.e.c.

2.3—Foreign military aids

6.6*—Housing and community amenities n.e.c. 10.1*—Sickness and disability 10.4*—Family and children 10.5*—Unemployment 2.2*—Civic defence 2.3—Foreign military aids 7.4*—Public health 4.3*—Fuels and energy 5.2—Waste water management 10.6—Residences 10.7*—Social exclusion n.e.c.

6.2*—Community development

5.1—Waste management 5.2*—Waste water management 6.6*—Housing and community amenities n.e.c. 8.4*—Religious and other community services 9.3*—Post-secondary non-tertiary education 10.9*—Social protection n.e.c. 1.3*—General services 4.4*—Manufacturing, mining and building 2.2*—Civic defence 6*—Housing

Micro-category

5161.02

108.39

524.17

19,528.74 3562.20 8632.46 998.51 524.17 534.90 133.42 68.18 106.74 5161.02

489.11

2176.95

998.51 3752.05

21,298.39 3544.01 5202.36

292.24

740.21

32.00 68.18 489.11

Mean

4128.28

23.40

78.21

279.98

26.03

895.48 99.29 227.31 59.05 26.03 55.34 82.00 154,210.18 117.42 78.21

21,915.01 3361.97 4631.78 360.46 222.51 416.39 49.48 27.21 0.00 4128.28 222.51

3444.87

41.45

59.05 21.12

18.56 20.39 39.80

14.29

22.82

100.59 154,210.18 3444.87

Mean % change

58.75

1325.69

360.46 3453.23

4558.57 2825.32 4387.32

412.99

1041.92

20.87 27.21 58.75

Median

5.88

–2.84

0.00

0.98 8.94 8.84 –0.23 0.00 –0.60 –8.77 –3.92 0.00 5.88

3.38

7.97

–0.23 3.70

0.32 2.02 5.65

0.00

–0.90

–0.91 –3.92 3.38

Median % change

212.65

2819.51

377.49

385.49 1124.91 5154.13 886.01 521.53 439.35 2020.42 534,220.91 383.66 439.63

65,479.79

800.33

665.71 388.41

283.89 462.67 635.10

328.44

339.52

1230.46 825.28 13,575.88

% Change

(continued)

Potential punctuation

Shift across Shift across Shift across Sudden peak Sudden peak Sudden peak Sudden peak Sudden peak Sudden peak Potential punctuation Potential punctuation Sudden peak

Sudden peak

Sudden peak Potential punctuation Sudden peak

Shift across Sudden peak Sudden peak

Potential punctuation Sudden peak

Sudden peak Sudden peak Sudden peak

Type

  Appendix B 

249

7.1—Medical products, appliances and equipment 7.3*—Hospital services 10.6*—Residences

Health

Environmental protection Economic affairs

Environmental protection

Environmental protection

Health

Environmental protection

Health

Health

Social protection

2017

2018 2019

2020

2021

2021

2022

2022

2022

2022

7.1*—Medical products, appliances and equipment 5.3*—Pollution abatement

5.1*—Waste management

5.6*—Environmental protection n.e.c.

5.2*—Waste water management 4.9*—Economic affairs n.e.c.

7.1*—Medical products, appliances and equipment 7.4*—Public health services

6.3*—Water supply

106.74

61.84

108.38

384.47

108.39

32.00

231.04

68.18 947.38

534.90

108.39

429.18

32.00

Mean

0

37.73

23.40

277.75

23.40

20.87

166.95

27.21 829.65

416.39

23.40

453.17

20.87

Median

117.42

13.55

279.97

33.26

279.98

100.59

22.08

154,210.18 30.36

55.34

279.98

16.21

100.59

Mean % change

Note: * Indicates those categories converging with the budget law, which are classified in the same way

2017

Housing and community amenities Health

2017

5.1*—Waste management

Environmental protection

2017

Micro-category

Macro-category

Year

Table B.2 (continued)

0

0

–2.84

11.08

–2.84

–0.91

–2.33

–3.92 0.00

–0.60

–2.84

0.81

–0.91

Median % change

Potential punctuation Potential punctuation Sudden peak

Type

Potential punctuation 3,011,995.94 Sudden peak 320.98 Potential punctuation 224.60 Potential punctuation 576.73 Potential punctuation 1550.17 Potential punctuation 504.28 Potential punctuation 334.72 Potential punctuation 376.94 Potential punctuation 2437.34 Potential punctuation

780.02

1538.01

413.94

283.50

% Change

250  Appendix B

  Appendix B 

251

As for the remaining twenty observations of the budget bill higher than 200 per cent, I proceed with the same analysis as conducted for the budget law. The characteristics for deciding whether or not to include the extreme changes are, again, (a) whether the median expenditure for the category is lower than € 150 million (given the expenditure for all budget categories, that cutoff point corresponds to the 25th percentile); (b) whether the proportion of expenditure for the category in the year of the sudden peak is lower than the 0.03 per cent of the total (given the proportion of expenditure of each category on the total budget of that year, 0.03 per cent again corresponds to the 25th percentile); and (c) whether the yearly percentage change is above the top 1 per cent of the whole distribution of budget changes (whose growth rate for the budget bill is 1364.01 per cent). There is a shift across spending categories (‘Tertiary education (9.4)’ (2004); ‘Sickness and disability (10.1)’ and ‘Old age (10.2)’ [both in 2005]) which, as before, are not considered, as they would probably lead to misleading interpretation. Thirteen are sudden peaks and four are potential punctuations. Figure B.2 places these sudden spikes accordingly. As with the budget law, cases surpassing the top 1 per cent are excluded, as they are non-representative of the full distribution of changes and are in categories with a negligible importance over the total budget. Other cases for which a very small portion of funds is allocated are discarded as well, that is ‘Waste management (5.1)’ and ‘R&D on education (9.7)’. The remaining (those in the top right circle and the three with only a low median of funds) will be included. Among the potential punctuations, only ‘R&D on environmental protection (5.5)’ is also in the group of observations with a low median; as in a similar case on the budget law, I retain the observation. To review, out of the twenty extreme changes of the budget bill, thirteen are sudden peaks, four are potential punctuations and three are shifts across budget categories. The potential punctuations are all kept in, while three movements of funds across categories and seven sudden peaks are left out and will not be included in the analysis to avoid potentially misleading results. Fifteen potential punctuations and nine sudden peaks of the budget bill converging with those of the budget law are included in the dataset as well.

252 

Appendix B

Median < 150m None Proportion < 0.03% Top 1%

2.3 (2013, 2016) 10.4 (2000, 2005) 10.7 (2005, 2016)

4.7 − 5.5 10.6

5.1 (2002, 2009) 5.2

9.7

7.1

1.4 − 9.8

Fig. B.2  Main characteristics of only sudden peaks (budget bill)

1.2  Confirmation of the Leptokurtic Distribution of Annual Budgetary Changes in Italy As described in Sect. 2.3, probability distributions can be placed along a continuum from ‘mild’ to ‘wild’ randomness (Mandelbrot 1997, 1999); that is, from thin to heavy tails, where a normal distribution has the thinnest tails (suggesting fewer punctuations) and the Paretian distribution has the heaviest ones (pointing to a large number of punctuations) (Jones et al. 2003). The latter becomes wilder as the absolute value of the exponent increases, thus enlarging the tails of the probability distribution and flattening out the shoulders. This type of distribution, known as a power

  Appendix B 

253

function, is the one we usually witness when dealing with budget data. To verify which type of family distributions the Italian budget belongs to, a common and reliable approach is to look at the cumulative density function (CDF). This method is preferred over a simple probability density function (PDF) because it allows us to deal with significant variability in the tails.3 Moreover, besides estimating direct parameters showing the probability distribution of budget data which underlies the frequency distribution, one can also look to the fit of the frequency distribution in loglog and semi-log plots, which allows us to visually detect the difference between exponential and Paretian distributions. In the first case, plotting the logarithm of the cumulative relative frequencies against the values of the bins or category midpoints, data will fall along a straight line, thus approaching an exponential PDF. In the second case, the logarithm of the cumulative relative frequencies is plotted against the logarithms of the category midpoints, and if data fall along a straight line, it is a Paretian PDF.  To see which kind of probability distribution data the Italian budget approaches, I first draw log-­log and semi-log plots, then I run an OLS regression associated with each graph, in order to obtain direct parameter estimates (Figs. B.3 and B.4). Thus, it is possible to easily examine the scatterplot reproducing the empirical data and to use the R2 to compare the goodness-of-fit. The two graphs show an interesting difference between the positive and the negative tail of the distribution. The former is better represented by the log-log plot while the semi-log plot better fits the latter. In both cases (positive tail in the log-log plot and negative tail in the semi-log plot), the parameter estimates approach straight lines with negligible slips at the very extreme of the distribution (only for the positive tail), supported by high values of the R2 (0.96 for the positive tail and 0.97 for the negative one). The same is true when looking at the same plots for the budget bill.

3  The PDF simply counts the number of cases in each bin and estimates the probability of occurrences associated with the bin; therefore, coefficients are easily affected by the high values falling into the tails of the distribution and are usually incredibly high because of the accumulation in bins (Sornette 2006; Clauset et al. 2009). In contrast, cumulating the bins does not transform the underlying distribution. Thus, using the CDF of the power function, which is also linear in its logarithms, guarantees more robust Ordinary Least Square (OLS) parameter estimates than those based on the PDFs, which are frequently biased (Mandelbrot 1963; Breunig and Jones 2011).

Log−Log Plot

pos  −1.01 R2  0.96 neg  −1.03 R2  0.91

1.0

Tail positive

0.0 −0.5 −2.0

−1.5

−1.0

Log Probability

0.5

negative

−1.5

−1.0

0.0

−0.5

0.5

Log of Growth Rate

Semi−Log Plot pos  −0.12 R2  0.7 neg  −1.47 R2  0.97

1.0

Tail positive

0.0 −0.5 −2.0

−1.5

−1.0

Log Probability

0.5

negative

0

5

10

15

20

25

Growth Rate

Fig. B.3  Log-log and semi-log plots of percentage change (budget law). Note: the two lines represent the regression estimates for the positive (solid) and negative (dashed) tails of the distribution. In both cases, the negative slope identifying values of budget reductions has been reversed and transformed into positive, in order to have a better visual understanding and comparison with the positive slope

Log−Log Plot

pos  −0.99 R2  0.97 neg  −1 R2  0.9

1.0

Tail

−0.5 −2.0

−1.5

−1.0

Log Probability

0.0

0.5

positive negative

−1.5

−1.0

0.0

−0.5

0.5

Log of Growth Rate Semi−Log Plot pos  −0.12 R2  0.72 neg  −1.43 R2  0.96

1.0

Tail

0.0 −0.5 −2.0

−1.5

−1.0

Log Probability

0.5

positive negative

0

5

10

15

20

25

Growth Rate

Fig. B.4  Log-log and semi-log plots of percentage change (budget bill). Note: the two lines represent the regression estimates for the positive (solid) and negative (dashed) tails of the distribution. In both cases, the negative slope identifying values of budget reductions has been reversed and transformed into positive, in order to have a better visual understanding and comparison with the positive slope

256 

Appendix B

That means that the Paretian PDF suits the distribution of budgetary changes in Italy. The merit of this method relies on the straightforward way it compares direct parameter estimates by looking at the slopes, which signal the heaviness of the tails. All things considered, ‘the shallower the slope, the more punctuated the tails of the distribution’ (Jones et al. 2003: 158), as is the case with the Italian budget. This analysis, along with those in Chap. 5, reveals the presence of a high number of tiny adjustments interrupted by major positive and negative changes, visible in the tails of the distribution, proving that the PE model holds true in Italian budgetary policy.

References Breunig, Christian, and Bryan D. Jones. 2011. Stochastic Process Methods with an Application to Budgetary Data. Political Analysis 19 (1): 103–117. Clauset, Aaron, Cosma Rohilla Shalizi, and M.E.J. Newman. 2009. Power-law distributions in empirical data. SIAM Review 51 (4): 661–703. ISTAT. 1999. La nuova classificazione del Bilancio dello Stato e la traduzione in italiano della COFOG, S. Carobene – ISTAT, Dipartimento di Contabilità Nazionale, n. 13/1999. Jones, Bryan D., Tracy Sulkin, and Heather A. Larsen. 2003. Policy Punctuations in American Political Institutions. American Political Science Review 97 (1): 151–169. Mandelbrot, Benoit B. 1963. The variation of certain speculative prices. Journal of Business 36: 294–419. ———. 1997. Fractals and Scaling in Finance. New York: Springer. ———. 1999. Multifractals and 1/f Noise. New York: Springer. Sornette, Didier. 2006. Critical phenomena in natural sciences. Berlin: Springer.

Index1

A Accountability, 21, 104 Agenda-setting, 27, 30, 52, 100 Austerity, 2, 8, 50, 64, 77, 87, 124n4, 142, 167, 206, 212, 213 B Balanced budget, 4, 49–51, 50n4, 53, 63, 63n26, 122 Balance of power, 14, 33, 35, 36, 44, 58, 81–84, 86, 94, 108, 154, 154n1, 175, 176, 181, 182, 189, 194, 203 Bipolarism, 92, 105 Blame, 95, 119, 210 Bounded rationality, 11, 27, 28, 204, 211 Budget bill, 12–14, 33–35, 45, 54–56, 60, 61, 66, 81–85, 93, 101n14, 118, 120, 125, 126, 128, 129,

129n8, 152–156, 154n1, 158–171, 160n6, 161n7, 163n8, 175–186, 183n5, 189–192, 200, 202, 239–253, 255 category/ies, 14, 65, 81, 82, 84, 103, 127, 129, 130, 133, 139, 143, 152, 155–159, 160n5, 160n6, 162, 164, 165, 168–170, 178, 183, 187, 190, 194, 202, 235, 245, 247, 251 composition, 158, 159, 166 cut/s, 24, 78, 80, 103, 119, 123, 141, 143–145, 158, 184, 190, 194, 206, 212 cycle/s, 45, 53, 70, 78, 82, 86, 102, 151, 163, 181, 183, 194, 205 increase/s, 86, 104, 119, 122, 124, 129, 133, 134, 141–143, 156, 165, 168, 178, 179, 187, 231, 232, 247

 Note: Page numbers followed by ‘n’ refer to notes.

1

© The Author(s), under exclusive license to Springer Nature Switzerland AG 2023 A. Cavalieri, Italian Budgeting Policy, https://doi.org/10.1007/978-3-031-15447-8

257

258 

INDEX

Budget (cont.) law, 12–14, 23, 33–35, 45, 46, 50n4, 53, 60, 66, 81, 83–85, 93n9, 101n14, 118, 125, 125n5, 126, 128, 129, 129n8, 131, 134, 151, 153–155, 158, 160n6, 161–165, 161n7, 167–171, 175, 177–190, 183n5, 192–194, 199–201, 210, 239–251, 254 in progress, 54 transformative nature of the, 159, 160, 171, 177, 185 Budgetary outcome, 10, 13, 25, 26, 29, 33, 35, 51, 58, 67, 79, 93, 100, 107, 117, 119, 121, 145, 176, 181 plan, 3, 4, 10, 45, 155, 166, 169, 208 process, 5, 6, 8, 9n4, 11, 13, 14, 21, 43–45, 51–59, 61, 62, 65, 67–70, 77, 78, 80, 81, 86, 87, 93–94, 107, 118, 121–123, 135, 141, 145, 152, 155, 156, 158, 166, 168, 169, 171, 175, 176, 178, 179, 182, 185, 187, 189, 193, 193n13, 194, 201–203, 207, 231 Budgetary regime centralisation, 13, 85 C Case-study, 9, 12, 14, 67, 106, 106n22 Central Limit Theorem (CLT), 32 Certezza dei tempi di decisione, 52, 57, 203 Change/s hyper-incremental, 30–33 magnitude of budgetary, 86, 87, 104, 107, 117, 134, 138 paradigmatic, 1, 86

punctuated, 29, 31, 34, 79, 119, 123 Clause general escape, 66, 100 safety, 53, 53n9 unusual events, 100 Coalition conflict/s, 87, 101–102, 102n15, 134, 164, 166, 170, 225 Committee budget, 54, 55, 151, 169, 191, 200 V, 54, 55n14, 56n18, 177n1, 182, 191, 192, 200, 201 Common Pool Resource (CPR), 120, 121 Confini delle materie trattate in sede referente, 193 Consensualism, 203 Constitution, 9n4, 53, 56, 56n17, 94, 189, 200, 202, 203, 210n6 Country-Specific Recommendation/s (CSR), 63, 69 COVID-19, 3n1, 10, 11, 13, 22, 24, 51, 66, 70, 88, 92, 100, 124, 131, 134, 137, 142, 145, 151, 162, 180, 192, 206, 209, 212, 240 Crisis debt, 6, 48, 50n4, 205 Eurozone, 3n1, 7, 10–13, 43, 48, 49, 61–68, 77, 100, 107, 108, 124n4, 134, 137, 142, 145, 151, 190, 204–207, 211, 212 financial, 2 pandemic, 51, 67, 78, 88, 103, 108, 124, 142, 162, 199, 209, 212, 245, 247 D Debt, 3, 6, 12, 22–24, 24n1, 44, 45, 47–49, 50n4, 61, 63, 63n26, 64n27, 66, 78, 83, 125, 125n5, 131, 205, 208, 211, 212

 INDEX 

Decisione di Finanza Pubblica (DPF), 61, 61n22 Decision-making, 4, 10, 13, 14, 20, 24–28, 33–36, 43, 56, 78–80, 84, 85, 93, 95, 105, 107, 117, 119, 126, 132, 144, 151, 152, 156, 158, 169, 175–195, 194n15, 205–207 Deficit, 44–46, 48, 49, 59, 60, 60n21, 63n25, 63n26, 64n27, 66, 78, 125, 194, 207, 208, 211 Disproportionate information processing, 27–31, 127, 180 Distribution frequency, 31, 33, 80, 118, 126, 253 leptokurtic, 31, 33, 118, 119, 126, 127, 129n9, 131, 252–256 Distributive politics, 34, 120 Divieto di trattazione di altri affari, 52, 54, 56, 203 Documento di Programmazione Economica e Finanziaria (DPEF), 45, 49, 60, 61, 131, 162 Document of Economy and Finance (DEF), 49, 61n22, 69, 93, 93n9, 163, 207 Draft Budgetary Plan (DBP), 69, 155, 177 Dynamic Model of Choice for Public Policy (DMCPP), 27, 129, 145 E Economic and Monetary Union (EMU), 10, 59, 59n20, 67, 131, 166, 167, 208 Electoral cycle, 156–158, 181–182, 187 Emergency management of the economic policy, 56, 186 Error-accumulation process, 117

259

Eurocrisis, 65 European Commission, 8, 14, 51, 58, 60n21, 63n25, 64–66, 78, 103, 176, 177, 207, 209, 212 European Economic Governance (EEG), 8, 10, 11, 35, 43, 58–62, 67, 77, 86, 95, 100, 107, 180, 205, 206, 208 European Monetary System (EMS), 6 European Semester (ES), 53n10, 61, 61n23, 63, 66, 93, 177, 208 Eurotax, 48, 208 External constraint, 12, 25, 59, 59n20, 64n27, 77, 81, 84, 85, 95–100, 107, 122–124, 123n2, 133, 138, 142, 152, 180–181, 208, 209, 223, 224 F Financial backing, 53, 53n9, 54, 56, 194 bill, 45, 60, 61, 186, 193n11, 200 market, 5, 64, 64n27, 67n29, 123n2, 211 First Republic, 89, 101, 125, 134, 144, 175 Fiscal Compact, 53, 63, 63n26, 202n4 Fiscal discipline, 7, 66, 121 Fragmentation, 88–89, 94, 102n15, 117, 119–121, 132, 134, 138, 141, 143, 179, 188, 194, 195 party system, 13, 82, 87–89, 92, 152 Friction/s cognitive, 28, 195 institutional, 11, 13, 27–29, 32, 77, 80, 81, 86, 87, 100, 107, 118, 123, 124, 127, 128, 137, 142, 144, 152, 157, 169, 171, 194, 195, 202, 204, 212

260 

INDEX

G Gaussian, 30–32, 129 Globalisation, 211 Great Recession, 3n1, 11, 24, 49, 61, 131, 163 H Heuristics, 28 Hypotheses-testing, 79, 107, 108 I Ideological alternation, 87, 104–105, 134, 137, 142, 143, 164, 170, 187 budgeting, 87 Incrementalism, 27, 28 Index of transformativeness, 160n6, 161, 161n7, 163, 164, 168, 183–185, 183n4, 183n5, 187, 235, 236 Information processing, 28, 32, 122 processor, 29 Italian anomaly, 51, 201 K Kurtosis, 30, 31, 129, 129n9

Treaty, 6, 8, 11, 12, 46, 59, 77, 123, 133, 166, 180, 207, 211 Manovra, 84, 101, 101n14, 134, 146, 162, 163, 186, 187n7, 188, 189, 192, 194, 200, 200n2, 201, 210 Maxi-amendment, 55, 55n16, 57, 193, 193n12, 193n13, 194, 200, 201 Micro-sectional adjustments, 144, 175, 187 dispositions, 54 interests, 203 Minister of Economy, 52, 53, 65 of Economy and Finance, 52, 69 of Finance, 21, 33, 45, 51n5, 52, 56, 60, 121, 122 Mixed-method strategy, 186 Model contract, 33, 51, 177 delegation, 33, 51n5 Monocameral regime, 57 Multilevel governance, 5, 9–11, 14, 58, 59, 77, 87, 95, 117, 123, 176, 206, 207

L Law of 1/n, 34, 89, 178 Learning process, 142, 169 Long-term budgetary plan, 3, 4, 169 sustainability public finance, 20

N National Plan of Recovery and Resilience (NPRR), 66, 92, 103 Next Generation EU (NGEU), 11, 66, 67n29, 100, 103 Normally distributed curve, 30, 31 Normative stretching, 145, 176, 186, 193

M Maastricht parameters, 46, 131, 180

O Omnibus law, 45 Ordinal legislation, 79

 INDEX 

P Pandemic Emergency Purchase Program (PEPP), 66 Parliamentary democracy, 10, 13, 33, 58, 81, 107, 176, 182, 189 discussion, 55, 57, 84, 94n10, 186 process, 81, 152, 153, 182, 183, 190, 192, 247 Party/ies anti-establishment, 7, 78, 108 mainstream, 190 populist, 7–9, 7n2, 78, 92, 102, 105, 107, 108 system, 8, 9, 13, 77, 87–89, 89n5, 92, 100, 101, 102n15, 107, 144, 152, 190, 191 Period of alternation, 105n20, 137, 144 Permanent austerity, 2, 87 Phase bureaucratic, 93 of constitutionalised austerity, 50 of convergence, 46, 166 executive planning, 53, 85, 94 governmental, 93 legislative approval, 54, 85 of parliamentary debate, 93 of solidarity, 51 stability and growth, 48 Polarisation, 13, 87, 89–93, 99, 102n15, 104n19, 118, 121–122, 132, 134, 135, 137, 141, 143, 144, 152, 156, 165, 169, 179, 204 Policy cycle/s, 62, 130–131 Policy idea/s, 11, 25, 86, 213 Power concentration, 90, 121, 144 Preference homogeneity, 121, 144 Pro-spending bias, 120, 122 Provisional budget, 46, 57, 93, 210n6

261

Punctuated Equilibrium Theory (PET), 11–13, 20, 25, 36, 79, 80, 84, 85, 87, 88, 100, 107, 120, 124, 126, 128, 131, 142, 145, 168, 202, 204 Punctuation/s, 27–29, 32, 32n5, 33, 77, 79, 80, 88, 106, 117–146, 151, 152, 157, 171, 181, 204, 205, 231, 232, 240, 240n1, 245–247, 251, 252 R Reallocation of expenditure, 14, 81, 155, 164, 168, 170, 178, 183, 190 spending, 152–158, 164, 176–182 Regression Ordinary Least Square (OLS), 136, 138, 140, 164, 165, 188, 188n8, 237, 253 quantile, 79, 80, 132, 133, 135, 135n11, 136, 138–141, 143, 229–231, 233–234 Responsibility, 6, 7, 9, 10, 12, 46, 53, 58, 65, 66, 82, 87, 108, 124, 180, 206, 208–212 Responsiveness, 7, 10, 87, 124, 124n3, 209–212 Retrenchment, 2, 6, 20, 59, 124, 161, 166, 184, 191, 194, 210 Revenues, 12, 20, 21, 47–49, 49n2, 93, 125, 218 S Second Republic, 9, 12, 46–48, 59, 92, 101, 191 Shock/s, 2, 3, 11, 26, 44, 77, 80, 87, 100, 107, 108, 117, 118, 124, 127, 134, 137, 142, 156, 166, 181, 188, 205, 206, 212, 231

262 

INDEX

Single currency, 6, 8n3, 46, 131, 166, 207 Six-Pack, 63, 63n25 Spending intention/s, 81, 125, 125n5, 151–171, 202 preference/s, 81, 85, 87, 137, 142, 143, 152, 153, 155, 156, 166, 169, 175, 202, 231, 247 Stability and Growth Pact (SGP), 59–61, 60n21, 63, 65, 66, 100 Stagecoach attack, 54, 141, 144, 192–195 Status quo, 1, 13, 14, 26, 28, 31, 33, 34, 81, 85, 102n16, 105, 119, 131, 134, 143, 152, 153, 154n1, 155, 165–167, 169–171, 179, 181, 202, 204, 212 Superminister, 60 Symmetrical bicameralism, 82, 185, 189–190, 202, 210 T Tail/s, 30, 31, 32n5, 33, 80, 119, 126, 127n6, 138, 139n14, 252–256, 253n3 Tax/es, 2, 3, 20, 45, 49, 50, 67n29, 212, 212n7 Technocratic government/s, 10, 90n7, 91, 92, 99, 102–104, 102n15,

105n20, 107, 118, 136, 138, 143, 162, 164, 187, 190, 191, 201, 209, 231 Theory-testing, 108 Third Republic, 9, 9n4, 92, 191 Trade-off, 25, 158, 159 Tutela del contenuto proprio, 52, 54, 203 Two-Pack, 63, 134 U Unicameralism, 200 Urgency, 22, 56n17, 100, 124, 167 V Veto-point theory, 155 Vote-seeking strategy, 34, 141 W Window/s of opportunity, 27, 204, 212 policy, 26, 30 Z Zero-Based Budget (ZBB), 65, 65n28, 156, 169