The use of swaps by local administrations: the case of Italian regions, 2007–2014
Journal of Public Budgeting, Accounting & Financial Management
ISSN: 1096-3367
Article publication date: 10 September 2020
Issue publication date: 19 October 2020
Abstract
Purpose
This study contributes to the literature on local administrations' debt and attempts to answer the following research questions: (1) What effects do swaps produce on regions' debt? (2) Have swaps been used to finance discretionary debt?
Design/methodology/approach
The paper investigates the debt burden as influenced by economic, financial and political variables and forces with panel data techniques, and tests whether swaps have been used to financing debt due to unfunded expenditures.
Findings
Panel data results of 15 Italian regions over the 2007–2014 period shows that regions with higher debt exhibited a higher interest rate exposure and have employed derivatives hoping to counterbalance the reduced resources received from the central state, in line with other European countries' experience (i.e. France and Greece).
Research limitations/implications
The scarcity of official data and information on swaps has limited the empirical investigations in the literature but did not reduce the losses of local administrations.
Originality/value
This study creates the first database on swaps purchased by Italian regions to investigate their impact on their debt. Results show that highly indebted regions with reduced funds from the central state and diminished local resources are more likely to use swaps to fund their debt. Italian regions heavily depended on long-term debt to finance their non-healthcare services, rather than current revenues; swaps have been used to finance discretionary (non-healthcare) debt.
Keywords
Acknowledgements
We would like to thank Pietro Maffettone – University of Naples, the discussant of the 23rd Multinational Finance Conference 2016, Kyriaki Kosmidou – Aristotle University of Thessaloniki, and the discussant of the New Public Sector Seminar, David Heald – University of Glasgow for their useful comments and suggestions. All errors are solely the authors' responsibility.
Citation
Oldani, C. and Fantini, G. (2020), "The use of swaps by local administrations: the case of Italian regions, 2007–2014", Journal of Public Budgeting, Accounting & Financial Management, Vol. 32 No. 4, pp. 713-727. https://doi.org/10.1108/JPBAFM-12-2019-0184
Publisher
:Emerald Publishing Limited
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