BANCA D’ITALIA
EUROSISTEMA
The effectiveness of cohesion policy:
what lessons from Italy?
Daniele Franco
New indicators – measuring progress in cohesion policy
Perugia (Umbria, Italia) - 29 Aprile 2011
Italy’s Regional Policy in the past
decade
2
Italy’s New Regional Policy (NRP):
an extensive information system
 The NRP - started in the late 1990s - aimed at spurring growth and creating social
capital
 It gave special attention to the involvement of local communities in the policy
design (exploiting local knowledge; bottom up approach)
 It made a great effort to develop an extensive information system on local
economies, which can also be used to measure policy performance
 The database “Indicatori di contesto chiave e variabili di rottura” was a joint effort
of Istat and the Ministry of the Economic Development to serve as a quantitative
support for the Objective 1 2000-2006 programming period. It has become an
important tool for the analysis of regional imbalances
 The database includes about 170 indicators for all regions on Environment,
Energy, Competitiveness, International trade, Crime, Social capital, R&D, etc.
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Some indicators were used in an outcome-based
financing scheme: Obiettivi di servizio
 Obiettivi di servizio - adopted for the programming period 2007-2013 - is an
outcomes-based financing scheme
 Public funds are disbursed on the basis of the results obtained by local
governments in four areas: education, child- and elderly-care, waste disposal,
water provision. The incentive scheme is based on 11 quantitative indicators
 Recent assessments show some positive results (e.g. improving the quality of
administrative procedures) and some critical aspects. Two aspects deserve
further scrutiny:
- the achievement of the target can be influenced by external factors that are
out of the control of local governments
- very specific objectives are easily measurable but can encourage opportunistic
behaviour (e.g. a local government may concentrate all its efforts on reaching
the objectives subject to conditionality disregarding other important services)
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The shortcomings of the New Regional Policy
● Shortcomings:
- There were problems with setting priorities (too many), overlapping
responsibilities, etc.
- Not enough attention was paid to the effects of ordinary policies in the
South. The quality of public services (justice, education, etc. ) is generally
worse than in the Centre North. Capital spending is less efficient. Regional
policies cannot offset these effects: additional capital expenditure in the
South is about ½ of total capital expenditure in the area. It is about 5% of
total public spending in the South
(Source: Cannari, Magnani and Pellegrini, 2010)
- Incentive schemes were largely ineffective
(Source: De Blasio e Lotti, 2008)
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The catching-up process did not really resume
Ratio of the per capita GDP of the South to that of
the Centre and North
(Percentage values, current values)
65.0
60.0
55.0
50.0
45.0
1975
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
1970
1963
1951
40.0
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Inadequate public services
7
Education: gaps with respect to the Centre-North
Students’ performance in Maths (InValSI*)
(secondary school; quartiles; 2005-06)
There are gaps in the quantity of
education (school attendance
ratios)
There are gaps in the quality of
education, increasing with the
age of pupils
Infrastructures are in worse
conditions
Dark colours identify better learning performance (source: Cipollone, Montanaro and Sestito, 2009)
* National Institute for the Evaluation of the Education System
8
Health: patients move to the Centre-North,
current per capita spending is higher in the South
(but the capital stock is lower)
Net flows of patients
Public spending on hospital care
(national average 2004-06=100)
Dark colours identify inflows of patients and lower per capita (age-adjusted) public spending
on hospital care
9
Hospital care: large gaps in the quality perceived
by patients between rich and poor regions
Satisfaction with hospital care for residents in some European cities
(index 0-100)
10
Justice and waste disposal: worse services
in the South (all local services are usually worse)
Civil justice: lenght of ordinary trials
(quartiles; days; 2006)
Separate waste collection
(quartiles; percentage values; 2007)
Dark colours identify faster civil justice procedures and a higher incidence of garbage
recycling
11
Doing business: more difficult in the South
Cost and time of doing business
(indexes; 2008)
● Average of 5 indicators concerning:
- starting a company
- getting a construction licence
- transferring a property
- enforcing contracts
- closing down a company
Dark colours identify contexts in which doing business is easier.
(Source: Bianco and Bripi, 2009)
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The role of public infrastructures
13
Poorer infrastructure endowments in the
Mezzogiorno
120
100
80
60
40
20
0
Mezzogiorno
Italia
Index: Italy=100; data refer to 2009.
(Source: Istituto Tagliacarne)
14
Education: more buildings with technical
deficiencies in the Mezzogiorno
Percentage points, data refer to 2000.
(Source: Ministero della Pubblica Istruzione)
15
Public investment spending vs physical measures of
infrastructural endowments: infrastructures seem more
costly in the South
140
120
100
80
60
40
20
Public capital/GDP
South and Islands
Centre
North West
North East
0
Indexes based on physical measures
Percentage values; physical measures are scaled on population size and land area
(Sources: Istituto Tagliacarne and Di Giacinto, Micucci and Montanaro, 2009)
16
Technical and administrative time needed to plan
and assign public works
1.500
1.400
1.300
1.200
Islands
1.100
South
South
1.000
Centre
days
900
North West
800
North East
700
600
500
400
300
200
100
0
2000
2004
2007
2000
External planning
2004
2007
Design approval
2000
2004
2007
Notice announcement
2000
2004
Offer submission
2007
2000
2004
2007
Adjugement
Numbers of days
(Source: Autorità per la vigilanza sui contratti pubblici)
17
Composition of capital expenditure: ordinary
resources are greater in the Centre-North
1000
900
800
700
600
500
400
300
200
100
0
South and Islands
Ordinary resources
Centre and North
FAS and European funds
Per capita expenditure in real terms. Base year: 2000. Averages 1998-2007
(Source: DPS-Conti pubblici territoriali)
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Per capita capital spending: the South is losing its
advantage
Per capita expenditure in real terms. Base year: 2000.
(Source: DPS-Conti pubblici territoriali and Quadro unico finanziario)
19
Ineffective incentive schemes
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Empirical work on incentives to firms
points to modest effects
● Incentives (Law 488, Law 388) have mostly subsidised investments that
would have been carried out anyway or cause changes in the timing of the
projects (anticipation effect)
● Bank of Italy’s 2008 survey of 4000 companies: additional investment
amounted to 30% of subsidies (but only 6% excluding changes in timing of
projects)
● “Patti territoriali”: dynamics of employment and plants in municipalities
within the Pacts not different from those of similar municipalities outside
the Pacts
● Ineffectiveness may reflect lengthy procedures, uncertainty about funding
and policies, etc.
(Source: de Blasio and Lotti, 2009)
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EU and Italian reforms:
common ground
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The reform of EU cohesion policy
 Reforms aim at:
(i) strengthening ex-post evaluation
(ii) introducing conditionality
 Other important objectives are:
(iii) enhancing strategic programming (in line with the strategy Europe 2020)
(iv) increasing concentration of interventions on specific objectives
(v) creating a closer interaction between different levels of government
(European, national, regional, local)
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The reform of Italy’s funds for regional
development policies
 The new legislation under discussion for reforming Italy’s cohesion funds
(within the fiscal decentralisation process) is consistent with the new
European guidelines
 Key features will be the focus on some relevant projects, program evaluation,
conditionality
 It would be useful:
- to add a set of targets at the regional level, to complement those at the
national level envisaged in Europe 2020
- to closely coordinate cohesion objectives with the fiscal decentralisation
process underway (which is setting uniform - minimal - standards for the
quality of public services across the country). E.g. improving education &
health services may require better infrastructures in some regions
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Indicators for moving towards an
outcome-based mechanism in the
delivery of cohesion policy
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Indicators can be further improved
 The quality of public services in the Mezzogiorno is worse than in the rest of the
country. There is a need for indicators measuring the performance of all entities
producing public services (the level of students’ achievement, the performance of
hospitals, the duration of judiciary procedures, etc.)
 The inadequate quality of public services also depends on infrastructural
endowments. Capital expenditure is also less efficient in theMezzogiorno.
Indicators evaluating infrastructural adequacy (quality of services, potential
demand, economic impact) are needed. The monitoring of costs and time of
realisation should be improved
 The separation between ordinary and additional expenditures is useful for
accounting reasons. However, the two components should be considered jointly
 Improving standardized data collection for all European regions concerning
cohesion spending (components, beneficiaries, etc.) and its effectiveness could be
extremely useful to evaluate interventions
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Indicators should be used to improve policies
 The creation of a close link between economic indicators (easily
measurable by independent institutions and available to external
researchers) and the mechanisms for rewards/sanctions may reinforce
the effectiveness of policy actions
 Within the Italian decentralisation process, the central government
will retain the power to intervene in case the quality of regional &
local services is not adequate
 Public resources should be directed towards interventions that through ex-post evaluation - have proved to be effective. Ineffective
programs should be discontinued
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Conditionality should be well-designed
 One should be aware that the impact of cohesion policy can be limited by
different obstacles for economic growth. Indicators on the difficulties of
doing business at local level highlight some of these obstacles
 Some obstacles may concern areas of regional responsibility:
- for example, entry barriers for new firms in the service sector
 Other obstacles may concern areas in which regions have no major role:
- wage levels in Italy do not fully reflect local labour market conditions
 conditionality should reflect the scope for action of each government
 there is a need for close policy coordination across levels of government and
sectors
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More effective incentive schemes are needed (I)
The design of the schemes and their implementation should ensure:
 Fast implementation of procedures: market competition requires fast
decisions that are usually incompatible with the sluggishness of bureaucracy
 Simplicity: complex rules discourage companies, increase costs, increase
legal conflicts
 Stability: firms’ investments are based on medium-long term plans; if rules
change over time, incentives are less effective and benefit only the firms
which would have carried out the investments anyway
=> Increase efforts to measure the quality of incentive schemes
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More effective incentive schemes are needed (II)
 Transparency and accountability are crucial
 The objectives of a program should be explicitly stated
 Ex post evaluation should not be based on the observation of changes over
time, which can be influenced by many factors, but on the estimate of the
most likely scenario without the policy action (counterfactual analysis)
 Two aspects are crucial:
(i) policy makers should collect and disclose the information that make ex
post evaluation possible. E.g., data should be collected also for those who
applied for the subsidy but did not receive it
(ii) policy trials should be introduced for statistically significant groups. This
would allow policy makers to close down ineffective programs
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BANCA D’ITALIA
EUROSISTEMA