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Structure of local revenues: a comparative analysis of Italy and Austria

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Sofia CalzolaThomas Prorok
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Structure of local revenues: a comparative analysis of Italy and Austria
Revenues - © Unsplash Towfiqu barbhuiya

Structure of the local budget in Italy

Italy is a unitary country composed of three tiers of government: the central, the regional and the local. The local level is further divided into two tiers of local entities, the provinces/ metropolitan cities and the municipalities. There is no hierarchy between provinces and metropolitan cities, both represent an intermediate unit between regions and municipalities. According to the 2001 constitutional reform and the 2009 Fiscal Federalism Law, No 42., which pushed the Italian fiscal system towards greater autonomy and fiscal federalism, Italian local governments are financed by their own taxes, shared taxes and not by earmarked equalization or additional transfers for unless in exceptional cases. Although the continuous territorial reorganization the financing system of provinces and metropolitan cities is complex and uncertain, devolved taxes, shared taxes and transfers from the “Experimental fund for financial consolidation of provinces” 1 represent the main source of revenues for these two units. Figure 1 shows that their own taxes represent the main source of revenue for municipalities, accounting for approximately 30% of their total local budget.
Since 2014, the main source of revenues for municipalities has been the Imposta Unica Comunale (IUC) which is made up of a local tax on properties (IMU), a local tax on waste (TARI) and a local tax for general public services provided by the municipalities (TASI). With Legge di Bilancio 2020, the ‘New IMU’ was established and TASI was incorporated into the IMU. The New IMU and TARI remain the main source of revenue for Italian municipalities, jointly with the IRPEF, a surtax on individual income which each municipality may establish, setting its rate at a maximum of 0,8%. It can be concluded that the Italian local budget is mainly made up of own-source revenues: fees (2021: 15%) and their own taxes (2021: 34%).

Figure 1: Municipal revenues as a share of total municipal revenue in Italy (2013 – 2021)

Source: AIDA PA Database; Bureau van Dijk – A Moody’s Analytics Company; BDAP Ministry of Economy and Finance and Ministry of Interior

Structure of the local budget in Austria

Austria is a Federal Republic composed of three tiers of government: the central, the Länder (states) and the local. The Länder are independent entities divided into municipalities, which constitute the Austrian local level. According to the Fiscal Constitutional Law and the Fiscal Equalization Act, in which the financial relations among the three tiers of government are regulated, Austrian municipalities are financed by shared and local taxes, current transfers and capital transfers, fees and other incomes. Figure 2 shows that the most important source of revenue for Austrian municipalities is shared taxes, which always constitute at least 40% of total local government revenue. Among the shared taxes, the most important and relevant are value added tax, personal income tax and corporate income tax. Local taxes and fees also represent an important factor of municipal income, jointly representing almost 17% of total municipal revenue. The most two relevant local taxes are the municipality and property tax. The first is a kind of business tax for which companies based in Austria have to pay a tax of 3% of the total amount of wages, the second is levied on individuals who own property. Fees are mainly generated through the provision of public services and utilities. Unlike Italy, Austrian local budgets consist of a complex system of intragovernmental transfers, whereby shared taxes are redistributed among tiers of governments.

Figure 2: Municipal revenues as a share of total municipal revenue in Austria, 2013 - 2021

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Source: Statistik Austria, Accounting of Public Authorities: Cash Flow Statements, Revenues of Municipalities including the City of Vienna

Conclusions

The local revenue system of the two countries is based on two different legal frameworks: the Italian local fiscal autonomy is promoted by giving importance to own taxes and limiting transfers from other levels of government by law, in Austria, a complex system of transfers is provided to compose the local budget. As data the shows, the Italian local budget is mainly made up of its own taxes (Imposta Unica Comunale) represent the main source for municipalities), which represent the largest source of revenue for local governments, while the Austrian local budget is mainly made up of shared taxes (value added tax, personal income tax and corporate income tax are the most important), which represent the largest share of the local budget in Austria. In Austria, local authorities are more dependent on transfers coming from other levels of government. Figures 3 and 4 show the differences.

Figure 3: Own municipal taxes as a share of total municipal revenue: comparison of Italy and Austria, 2013 - 2021

Source: AIDA PA Database, Bureau van Dijk – A Moody’s Analytics Company, BDAP Ministry of Economy and Finance and Ministry of Interior; Statistik Austria, Accounting of Public Authorities: Cash Flow Statements, Revenues of Municipalities including the City of Vienna

Figure 4: Shared taxes as a share of total municipal revenue: comparison of Italy and Austria, 2013 - 2021

Source: AIDA PA Database, Bureau van Dijk – A Moody’s Analytics Company, BDAP Ministry of Economy and Finance and Ministry of Interior; Statistik Austria, Accounting of Public Authorities: Cash Flow Statements, Revenues of Municipalities including the City of Vienna

Sofia Calzola

Sofia Calzola

Sofia Calzola is Research Assistant at KDZ – Centre for Public Administration Research in Vienna. She is pursuing a Master's degree in International Relations, curriculum Migration, Globalisation and World Governance at the University of Perugia (Università degli Studi di Perugia), Department of Political Science and holds a Bachelor's degree in Foreign Languages and Cultures from the University of Perugia. Decentralisation, local finances, European integration, multilevel governance and local governments are the main topics of research and interest. ….Sport, good food and Aperol Spritz always lead you to the right decision.

Thomas Prorok

Thomas Prorok

Thomas Prorok is Managing Director of the Austrian based KDZ Centre for Public Administration Research. Since more than 20 years he is working in the fields of Public Administration Reform, Governance and Quality as well as Decentralisation, Local Governments and EU-Integration. Thomas is European Lead Expert for the CAF-Common Assessment Framework (the European system for quality and good governance in the public sector). He studied European Law and holds a master degree in political science from the University of Vienna and is author and editor of manifold publications on local governments, Public Administration Reform and European Integration. Since 2015 Thomas is managing the BACID programme (www.bacid.eu) for building administrative capacities in the Danube Region.

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Citation

https://doi.org/10.57708/b168324669
Sofia Calzola, & Thomas Prorok. Structure of local revenues: a comparative analysis of Italy and Austria. https://doi.org/10.57708/B168324669
altalt

This research is part of the LoGov project.The project has received funding from the European Union‘s Horizon 2020 research and innovation programme under Grant Agreement No 823961.

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