What happens to interregional redistribution as decentralisation goes on? Evidence from the Italian NHS

In this paper we explore how political pressures for an increased decentralisation of revenue and expenditure competencies to sub-national governments may affect the degree of interregional redistribution accomplished by the public sector. We do this by focusing on a specific case, that of the National Health Service (NHS) in Italy. We estimate redistribution across regional jurisdictions by the NHS under the current institutional setting and under hypothetical alternative decentralised scenarios. Using actual regionalised public budget data for the years 1999-2006, we find that the NHS reduces differences in regional per-capita GDP by about 7% of GDP. This effect amounts to approximately 16% of redistribution by the total public budget and is largely driven by NHS expenditures. We then show that these results are subject to significant changes under alternative scenarios of intergovernmental relations, which we construct consistently with current instances emerging from the Italian debate on fiscal decentralisation reform. We show that political pressures for lower central government involvement in decentralised policies, such as health care, may result in lower levels of income redistribution across Italian regions.