1

Financing Public Investment Under Budgetary Restrictions: An Analytic Approach To

Capital Investment Decisions In Italian Municipalities (IMs)

Francesca Scala1

Italian Municipalities (IMs) have been subjected to capital rationing due to the reduction of

transfer payments from the national budget, restrictions imposed by the European Stability

and Growth Pact, and national fiscal discipline. To guarantee territorial economic

development, IMs have been attempting to implement %ew Public Management principles

and new financing strategies. This paper examines municipal financial decision-making for

investment expenditures, under budgetary restrictions. It proposes the application of the

Analytic %etwork Process in a number of IMs in the province of Frosinone (Lazio region), to

verify whether they use analytical methods and techniques to optimize value for money.

1. Introduction

This research deals with the topic of financing public investments in Italian Municipalities

(IMs) in conditions of fiscal restrictions, and proposes an analytic approach to decisions

regarding capital expenditure financing.

Over the last two decades, the public sector in the international scenario has experienced a

wide-ranging reform process, based on three major pillars: decentralization, entrepreneurial

administration, and efficient financial management. Following the global trends, since the

1990s, Italy has also started an intense redefinition of the inter-governmental relations system,

culminated in 2001 with the reform of Title V, Part II of the Constitution, as well as a re-

configuration of the public sector and its guiding principles, applying the New Public

Management (NPM) paradigm, which is designing a model of public administration aimed at

achieving results and evaluating performance.

However, delays in defining and applying the mechanisms of “fiscal federalism” (Art. 119

of the Constitution) have created a context of uncertainty and confusion for LAs’ finances,

compromising the correct programmability of financial resources and the effective

functioning of their autonomy, all of which has undermined the realization of public

investment due to insufficient availability of capital (capital rationing). By definition,

infrastructure investment implies the allocation of financial resources in the present to obtain

1 PhD in Economics of Local Development at the Department of Istituzioni, Metodi Quantitativi e Territorio,

Faculty of Economics, University of Cassino, E-mail: f.scala@unicas.it.

2

future advantages. The temporal gap brings up questions related to financing mechanisms.

Traditionally, according to the inter-generational equity principle, IMs financed investment

expenditures by turning to borrowing, mainly with the Cassa Depositi e Prestiti S.p.A. (CDP).

Unfortunately, intervention by the CDP has been heavily conditioned by the limits that the

Internal Stability Pact (ISP) imposes on borrowing by LAs, namely asking local governments

to improve public finances, as agreed at the European level (through the Maastricht Treaty

and the Stability and Growth Pact).

A number of laws have been enacted to broaden the range of financing instruments for

investment expenditures, resorting to so-called “innovative finance”, a concept not properly

defined in the literature, but rather, identified by means of the financing instruments

employed.

After a theoretical part, the research presents an empirical application based on the

population of municipalities located in the province of Frosinone, in the Lazio region, with

more than 5,000 inhabitants, according to the demographic statistics redacted by the Italian

National Institute of Statistics (ISTAT). An analytic approach has been applied to this

population, the Analytic Network Process (ANP), a multiple criteria methodology that is able

to consider, simultaneously, factors of a quantitative and qualitative nature, which are

presumed to play an important role in local financial decision-making, in order to verify if,

within this restrictive condition of limited financial resources and severe fiscal discipline, the

IMs are really resorting to innovative finance and at what level. A review of the literature

concerning the vast series of ANP applications has shown that no applications have

previously been found on the topic of this research.

The results obtained only partially admit the hypothesis of this study. In addition, they

raise a discussion on the relevant implications for municipal policy and financial

management.

The paper is organized as follows: after a brief introduction, the second paragraph

describes in a systematic manner the most relevant global reforms with regard to

globalization, decentralization, public management and financial management. The third

paragraph describes the reform process in Italy and the application of the various types of

“innovative finance”. The fourth paragraph focuses on the research problem and the

methodology used. The fifth paragraph explains the empirical analysis, conducted by

employing the ANP. Finally, the last paragraph discusses the results and attempts a few

suggestions.

3

2. The World Scenario Framework

Over the last two decades, many Countries in the world have experienced a broad and

complex reform process with regard to the public sector, the main components of which have

been identified as decentralization, the innovative managerial approach to the public sector

(NPM), and the public financial management model.

Globalization, decentralization and governance

Since the beginning of the 1980s, globalization2 has had a profound impact on political,

economic and social relationships within and among Countries, by elevating the sphere of

dialogue and action to a world arena, changing the spatial conception of the world and

introducing a new concept of State3. Some issues have assumed a global relevance, needing to

be addressed not just by a single State, but simultaneously, by many Countries. This

fundamental change has progressively weakened and eroded the sovereignty of each Country

and its inner nature. Or rather, there has been a gradual proliferation of supra-state entities and

independent authorities4, which have diminished traditional State sovereignty, and whose

legitimacy has been recognized as being over and above the legitimacy of each State.

The traditional principles of authority and territoriality have been overcome by the

principle of interdependence and reciprocity and the international institutional space has

assumed a new configuration, in the shape of a network, unlike the traditional hierarchies.

2 The word Globalization appeared for the first time in the Webster’s %ew International Dictionary in 1961,

whereas it was originally found in an article published by the Economist in April 1959, which talks of

“Globalized quota” when referring to the quota system of importation in the car sector. Since the 1960s the term

has been used in common language. With reference to the origins of globalization, these are mainly part of the

technological revolution. Progressively, technology applied to finance, commerce, transport, politics, military

and communication has made the world smaller and reduced the cost of movement of goods, money and people.

In fact, the phenomenon has been meaningfully described by Robertson, R., (1992). Globalization. London:

Sage as “both the compression of the world and the intensification of the world conscience as a whole”. Over

time, the real essence of globalization has been primarily found in its economic perspective, identifiable as the

tendency of the economy to assume a global dimension, producing what Braudel has called Weltwirtschaft

(world-economy), in (Braudel, F., (1982). Civilization and Capitalism 15th

-18th

Century: The Perspective of the

World, Vol. III. Berkeley: University of California Press). Gradually, the economic integration of markets of

goods, services, and productive factors has produced political, cultural, and environmental implications. Today,

according to the World Bank, the concept of globalization does not yet have a complete definition, essentially

because of the usual overlapping between the concept and the historical age that it symbolizes.

3 The literature on globalization is wide-ranging. See World Bank, (2002). Globalization, Growth and

Poverty: Building an Inclusive World Economy. Oxford: Oxford University Press; World Bank, (2000).

Assessing Globalization. World Bank Briefing Papers, Washington D.C.: World Bank; Giplin, R., (2000). The

Challenges of Global Capitalism. Princeton NJ: Princeton University Press; Held, D., (1999). Global

Transformations. Stanford CA: Stanford University Press; Wolf, M., (2004). Why Globalization Works. New

Haven: Yale University Press; Friedman, J., (1986). “The World City Hypothesis” in Development and Change,

Vol. 17, No. 1, pp. 69-83; Cairncross, F., (1997). The Death of Distance. Londra: Orion; Greider, W., (1997).

One World Ready or %ot. New York: Simon & Schuster; Giddens, A., (2000). Runaway World: How

Globalization is Reshaping our Lives. London: Routledge.

4 Merusi, F., Passaro, M., (2000). Le autorità indipendenti. Bologna: Il Mulino; Cassese, S., (2004). La

nuova costituzione economica, Bari: Laterza; Cassese, S., (2002). La crisi dello Stato, Bari: Laterza.

4

This network is no longer formed in a pyramidal fashion, with overlapping institutions.

Instead, it is based on the recognition of supra-national or regional spaces, regulated by a

complex and multi-layer system of relationships. One of the regional areas that has achieved

the greatest relevance is the European Union (EU)5, a supranational institutional entity that

has not replaced the national and centralized States. Rather, it has contributed to defining a

new institutional architecture based on different levels of political, territorial and economic

responsibilities, with differentiated powers.

European policies are based on bottom-up approaches, founded on the affirmation of the

subsidiarity principle6, progressively assimilated by each State. This principle recognizes that

action will occur at different political levels, depending on the nature of the areas of

intervention, assigning priority to the lowest jurisdictional level of action consistent with

effectiveness.

The subsidiarity principle is the stronghold of the decentralization and of the fiscal

federalism models7. The last one concerns the distribution of tax and spending powers among

different levels of government, in order to realize the optimal dimension of the public services

supplied. Following the decentralization model. LAs can have the greatest knowledge of

citizens’ needs and can therefore better adapt the supply of public services to users’

5 Leonardi, R., (1998). Convergence cohesion and integration in the European Union. London: Mc Millan;

Nugent, N., (1999). Governo e politiche dell’Unione Europea. Bologna: Il Mulino; Della Cananea, G., ( 2003).

L’Unione europea. Un ordinamento composito. Bari: Laterza.

6 The origins of the subsidiarity principle can be found in the thought of some important philosophers, such

as Aristotle (384 - 322 A.C.), with regards to the relation between government and freedom; St. Thomas Aquinas

(1225 –1274) e Johannes Althusius (1557 - 1638). During the XIX century, the principle of subsidiarity became

one of the basic principles of Catholic social doctrine, founded on the recognition of replacing the role of

families and intermediate bodies, as compared to institutions, in every sectors of society. The first formulation

draft goes back to the Papal Encyclical Rerum %ovarum (1891) of Pope Leone XIII, even if the most specific

formulation is contained in the Papal Encyclical Quadrigesimo Anno (1931) of Pope Pio XI.

7 From a semantic point of view, the term federalism can be traced back to the Latin word foedus, which

literally means pact. As a result, a federation is an institution that exists thanks to a contract which holds together

some states, provided with sufficient autonomy, in a more or less stable way. Models of fiscal decentralization

have been mainly formulated by American scholars. In fact, in North America there is a long tradition of direct

democracy that is also concerned with the specific problems of public services and their financing. In addition,

American researchers claim that there is a mechanism of expressing preferences in single communities that can

be a guide in the formation of choices made by public bodies. From this point of view, Italy is quite different,

because of the difficulty in allowing citizens’ preferences to emerge, especially when they imply an excessive

weight on tax contribution. In addition, these models are not easily applied to Italy, because of the smallness of

municipalities, and the limited mobility of families, yet they are extremely important at the theoretical level. An

approach to the Italian system is offered by Romagnoli, G. C., (1988). %uove politiche di finanziamento degli

enti locali in Italia. Confronti con l’esperienza nord-americana. Milano: Franco Angeli, that makes a

comparison between the Italian and American systems. In addition, see: Presidenza del Consiglio dei Ministri,

(2005). Analisi e prospettive del federalismo fiscale. Roma: Istituto Poligrafico e Zecca dello Stato S.p.A., which

compares Belgium, Germany, the United States of America and Switzerland, with regard to their territorial fiscal

organization. Finally, we also refer to Petrovich, G., (1996). Politiche di accentramento e decentramento

istituzionale nelle scelte economiche collettive. Padova: Cedam, which further expands on the Italian system of

public and local finance and the decentralization process.

5

preferences, avoiding waste. On the other hand, citizens can exercise a greater control over

public expenses (Oates, 1972; Buchanan, 1965; and Tiebout, 1956)8.

Within the renewed framework briefly described above, it appears clear that, during the

1980s and 1990s, each Country is looking for a new identity, being constrained between two

kinds of propulsion, one toward the territorial dimension, and the other toward the world

dimension, giving free rein to controversies and debates over the appropriate size, functions,

scope, and strength of each State9. Its new role is no longer focused on its deep intervention in

the economic system, which was indispensable in supporting crucial economic sectors after

the Second World War10, since the traditional policy instruments, such as the exchange rate,

monetary and budgetary policies, could no longer be used to reduce financial market

instability. Today, on the other hand, the innovative identity of the State is essentially based

on the regulatory function11.

The classical and traditional concept of government as an institution has been

progressively replaced by the innovative model of governance12, as a way of governing and

interacting with other public and private entities, based on a decision-making process realized

in coordination with public institutions, collective organizations and private sectors, in order

to satisfy citizens’ demands and to promote consensus through the use of formal and/or

informal powers. Citizens and civil society are no longer relegated to a passive position with

regard to public administrations but, instead, they are able to claim the right to influence

8 Oates W. E., (1972). Fiscal Federalism. New York: Harcourt Brace Jovanovich; Buchanan, J. M., (1965).

“An Economic Theory of Clubs” in Economica, No. 32, pp. 1- 14; Tiebout, C. M., (1956). “A Pure Theory of

Local Expenditures” in Journal of Political Economy, Vol. 64, No. 5, p. 422. 9 Seguiti, M. L., (2003). “Le grandi riforme di bilancio tra politica ed economia. Il contesto internazionale, il

ruolo dello Stato e la pubblica amministrazione”, Working Papers, No. 3 – 4. Cassino: University of Cassino;

Tanzi, V., Schuknecht, L., (2000). Public Spending in the 20th

Century: A Global Perspective. Cambridge:

Cambridge University Press; Davis, E., (1998). Public Spending. London: Penguin; Fukayama, F., (2004). State

Building Governance and World Order in the Twenty-first Century. London: Profile Books. 10 Over time, this model of State has produced a progressive but consistent rise in public expenditures. In

theory, this rise is clearly justified by Wagner’s law, named after the German economist, H. C. Wagner, who

formulated it. The law states that public expenditures rise higher more than the national income. The causes of

this dyscrasia are due to the fact that the more modern and advanced the economy of a Country becomes, the

greater is their need for a growing numbers of services supplied by public governments. Clearly, this implies a

rise in public expenditures, which stops when it reaches a maximum level that cannot be exceeded. 11 Majone, G., (1994). “The Rise of the Regulatory State in Europe” in West European Politics, Vol. 17, No.

4, pp. 77-101. 12 Hill, M., Hupe, P. P., (2002). Implementing Public Policy: Governance in Theory and in Practice.

London: Sage Publications; Rhodes, R. A. W., (1997). Understanding Governance. Milton Keynes: Open

University Press; Bache, I., Flinders, M., (2004). Multi-Level Governance. Oxford: Oxford University Press;

Pierre, J., (2000). Debating Governance. Oxford: Oxford University Press; Commission of the European

Communities, (2001). La Governance Europea. Un Libro Bianco. Bruxelles.

6

decisions made at different levels of public administration, and obtain increasingly adequate

services (we refer to the voice and exit possibilities, Hirschman, 197013).

1.1 The Managerial Paradigm

Since the 1980s, a global reform movement in public management has vigorously evolved

and spread around the world14. Global reform falls roughly into two broad models: the

Westminster model and the American-Style Reinvention. These movements have built a new

framework, identified as Value for Money, that privileges public accountability15 and

transparency, results and performance, according to efficiency, effectiveness and

inexpensiveness criteria16, and the principle of rigid separation between politics and

administration has become fundamental. In this perspective the development of the idea of

“building public value”17 assumes a special relevance.

The Westminster model started in the early 1980s in New Zealand18. It represents a new

approach to public management, aimed at drastically reducing the size of government and

imposing a market-based discipline on government, shaped by new institutional economic

theories: a commitment to competition, and a belief in using market processes to shape the

13 Hirschman, A. O., (1970). Exit, Voice, and Loyalty. Responses to Decline in Firms, Organizations, and

States. Cambridge: Harvard University Press. 14 Organization for Economic Cooperation and Development (OECD), (1997). Managing Across Levels of

Government. Paris; Keating, M., (1998). Public Management Reform and Social Development. Paris: OECD. 15 As for many non-English-speaking Countries, the word “accountability” has no equivalent in Italian. So,

although the international reform process has focused on accountability principles (Olson, O., Guthrie, J.,

Humphrey, C., (1998). Global Warning. Debating international Developments in %ew Public Financial

Management. Oslo: Cappelen Akademisk Forlag) it is not easy to explain this concept clearly to practitioners.

An important definition of the accountability concept comes from Pezzani, F. (2001). “Il ruolo

dell’accountability nella società civile” in Azienda Pubblica, No. 4 July- August, p. 455. 16 For the concepts of efficiency and effectiveness see Anthony, R. N., Young, D.W., (1988). Management

Control in %onprofit Organizations. Illinois: Irwin, Homewood. Authors write at pp. 15-16: “By calculating a

ratio of outputs to inputs, or the amount of output per unit of input, we can obtain a measure of efficiency […].

The relationship between a responsibility center’s outputs and its objectives is an indication of effectiveness. The

more these objectives contribute to the objectives, the more effective the unit is”. Whereas for the economy

criterion, see Borgonovi, E., (1996). Principi e sistemi aziendali per le amministrazioni pubbliche. Milano: Egea,

pp. 152-162. Within the Italian system of laws, the three principles were introduced by Art. 1 of the Law August

7th 1990, No. 241. 17 Moore, M. H., (1995). Creating Public Value. Cambridge: Harvard University Press.

18 There is a vast amount of literature on the New Zealand reforms. Of special relevance are: Schick, A.,

(1996). The Spirit of Reform: Managing the %ew Zealand State Sector in a Time of Change. Wellington: New

Zealand State Services Commission; Pallot, J., (1999). Central State Government Reforms: Report on %ew

Zealand. Berlin: Central State Government Reforms Projects; James, C., (1998). The State Ten Years on from

the Reform. Wellington: State Services Commission; Scott, G., Ball, I., Dal, T., (1997). “New Zealand’s Public

Management Reform”, in Journal of Policy Analysis and Management, Vol. 16, pp. 357-381; Boston, J., Pallot,

J., (1997). “Linking Strategy and Performance: Developments in the New Zealand Public Sector” in Journal of

Policy Analysis and Management, Vol. 16, pp. 382-404; Boston, J., Martin, J., Pallot, J., Walsh, P., (1996).

Public Management: the %ew Zealand Model. Oxford: Oxford University Press.

7

incentives of government employees19. Reformers coupled the economic theories with

management reform ideas borrowed from the private sector, especially the theory of the

principal-agent20 and two competing formulas, “letting the managers manage”, which means

giving managers more flexibility, and “making the managers manage”, which refers to the

concept of holding mangers strictly accountable for results, as well as what government

should do directly, compelling it to rely on whoever could do the job most effectively and

cheaply. Once the elected officials had made basic policy decisions, government managers

had great discretion over how best to do the job, applying the principle of separation between

policymaking and policy administration.

The American-Style Reinvention began later, in 1992, during President Clinton’s

mandate. In contrast with the Westminster experience, it was highly politicized. The reform

aimed to establish a strategy of making government smarter, cheaper, and more effective,

following the basic formula reinventing government, which meant “creating a government

that works better and costs less”21. The program was realized through two channels: the

program of the Executive, named %ational Performance Review (%PR), and an act of

Congress, entitled Government Performance and Result Act (GPRA).

The reform movement described above was supported by the development of a solid

theoretical and practical approach named New Public Management (NPM)22 and the Public

Entrepreneurship Approach (PEA). The first approach is applied to the system of public

administration, covering the institutional order, the organizational structure, the personnel, the

19 This approach was called “Rogernomics”, from the name of the Finance Minister Roger Douglas, who

pushed for massive changes in government policy and management, in order to solve the economic problems

that were affecting the Country, due to growing competition from the so-called Asiatic Tiger economies and the

reduction of agricultural trade with the United Kingdom. The reform drew on the notion of transaction costs: the

high costs of gathering information about policies strengthens the powers of special interests, and increases the

possibility that these interests will attract the attention of decision-makers. Effective reforms require government

policymakers to find a way of breaking these connections. The basic idea of the reform is that: “The goal for

designers of public sector institutions and processes is to avoid public choice problems and minimize agency

costs”, contained in Scott, G., Ball, I., Dal, T., (1997). “New Zealand’s Public Management Reform”, in Journal

of Policy Analysis and Management, Vol. 16, p.360. 20 For more about the principal-agent theory, see Buchanan, J., Tullock, G., (1962). The Calculus of

Consent: Logical Foundations of Constitutional Democracy. Ann Arbor: University of Michigan Press; Olson,

M., (1965). The Logic of Collective Action. Cambridge: Harvard University Press; Tullock, G., (1965). The

Politics of Bureaucracy. Washington: Public Affairs Press; Niskanen, W., (1971). Bureaucracy and

Representative Government. Chicago: Aldine Atherton; Moe, T., (1984). “The New Economics of

Organizations” in American Journal of Political Science, Vol. 28, pp. 739-775. 21 The expression is contained in Gore, A., (1993). From Red Tape to Results: Creating a Government That

Works Better and Costs Less. Washington D.C.: Government Printing Office. 22 There is quite a large amount of literature which describes the NPM approach. In particular, see: Le

Grand, J., (2003). Motivation, Agency and Public Policy. Oxford: Oxford University Press; Pollitt, C.,

Bouckaert, G., (2004). Public Management Reform: A Comparative Analysis. Oxford: Oxford University Press;

Ferlie, E., Lawrence, E. L., Pollitt, C., (2005). The Oxford Handbook of Public Management. Oxford: Oxford

University Press.

8

procedures, managerial accounting, reporting and auditing. The transformation aimed at

modifying the traditional managing standards that governed public activity. NPM ideas are

based on the application of business-like criteria to the public sector, in order to replace the

conventional legalistic and formalistic perspective with a managerial one. The new

framework stresses the importance of strategic planning in the public administration, in order

to realize carefully analyzed programs within a preventive plan of action and on reducing the

vertical hierarchical orders, by creating independent agencies and enterprises, as well as by

privatizing public service, and contracting out government activities. The final aim of public

administration becomes the satisfaction of citizens’ needs.

The world size movement synthesized in the NPM also consists of another component,

which is the PEA23 and which has entered the mainstream literature of entrepreneurship since

the 1980s. According to the preeminent definition public entrepreneurship is the process of

creating value for citizens by bringing together unique combinations of public and/or private

resources to exploit social opportunities. The PEA focuses on the principles that the models of

entrepreneurship are considered to be valid instruments for achieving positive results in public

and non-profit settings. It relies on the ability of public officials to act as public

entrepreneurs, by identifying market opportunities.

1.3 The Financial Management Approach and European financial restrictions

At the international level, the continuous strengthening of the European integration

process has drawn the attention of governments and scholars, especially with regard to the

pressure exercised by the financial requirements of the EU, oriented toward a broad program

of privatization, and a severe reordering of public finance. The rules established for

participating in the European economic system have strongly affected the financial system of

the member States that joined the European Monetary Union (EMU). The Treaty of

Maastricht (February 7th 1992) established specific rules for keeping the public finances of

the member States under control, called “criteria of convergence”, that were necessary to

introduce the EMU.

During the 1990s, a process of expansion in the tax power recognized for LAs started to

develop, in order to maintain the European balanced-budget requirements necessary for EU

23 Morris, M. H., Jones, F. F., (1999). “Entrepreneurship in Established Organizations: The Case of the

Public Sector” in Entrepreneurship Theory & Practice, Vol. 24, No.1, pp. 71-91; Schneider, M., Teske, P.,

(1992). “Toward A Theory of the Political Entrepreneur: Evidence from Local Government” in The American

Political Science Review, Vol. 86, No. 3, pp. 737-747; Kingdon, J., (1984). Agenda, Alternatives, and Public

Policies. Boston: Little, Brown.

9

membership. Permanence in the EMU system requires member States to respect the Stability

and Growth Pact (SGP)24, which has strengthened the previsions of the Maastricht Treaty,

asking members to present programs of stability for additional years and to reach or maintain

in the middle term a “budgetary position of close to equilibrium or in surplus”.

Over the past two decades, the relevance assumed by the SGP has emphasized the need

for effective public expenditure management and financial accountability systems. A number

of NPM scholars have elaborated the %ew Public Financial Management (NPFM)

framework25, a managerial approach, applied to the system of the public sector, through

accounting techniques aimed at increasing transparency and accountability. This framework is

organized around programmatic objectives, and evaluated on the basis of indicators of

performance. Its broad aims are the achievement of fiscal discipline, the allocation of

resources to uses that reflect government policy priorities, and the delivery of public services

efficiently and effectively, as well as in an equitable manner.

3. Financing Public Investment in Italy

In the global sphere, increasing attention is paid to public infrastructure because of its

relevance in stimulating economic growth, and improving competitiveness among areas of a

global, national, and territorial dimension. Italy is one of the best-known examples of the

phenomenon of different levels of development that, generally, characterized industrialized

Countries26. Apart from being underdevelopment when quantitatively and qualitatively

compared with the average standards of the other European and world levels of infrastructure

24 The stipulation of the SGP stemmed from the fear that, after entering the EMU, Countries would not

respect the fixed criteria, causing economic and currency instability within the Union. It was defined in 1995,

following the proposal by the German Treasury Minister, Theo Waigel, which concerns the stipulation of a sort

of “stability pact”. Its origins can be found in the Resolution of the European Council No. 97/C236/01 signed in

Amsterdam on June 17th 1997, and in two Council Regulations of July 7

th 1997, No. 1466, and No. 1467,

respectively regarding the strengthening of supervision over budget balances as well as the coordination of

economic policies, and the acceleration and clarification of the methods used to implement the procedure for

excessive deficit. 25 Valid literature about the NPFM is found in: Olson, O., Guthrie, J., Humphrey, C., (1998). Global

Warning. Debating international Developments in %ew Public Financial Management. Oslo: Cappelen

Akademisk Forlag; Anthony, R.N., (1978). Financial Accounting in %on-business Organizations. An

Exploratory Study of Conceptual Issues. Stamford, Connecticut: Financial Accounting Standard Board; Steiss,

A. W., Nwagwu, E. O., (2001). Financial Planning and Management in Public Organizations. New York:

Marcel Dekker, Inc.. 26 For an accurate description of the Italian economic system, see: Istituto Nazionale per il Commercio

Estero, (2005). La posizione competitiva dell’Italia nell’economia internazionale. Roma; Acconcia, A., Del

Monte, A., (2000). “Regional Development and Public Spending: the Case of Italy” in Studi economici, Vol. 55,

No. 72, pp. 5-24; Del Monte, A., (1996). “Infrastrutture e sviluppo del Mezzogiorno” in Costabile L., (edited

by), Istituzioni e sviluppo economico del Mezzogiorno. Bologna: Il Mulino, pp. 33-50.

10

endowment27, in fact, the Italian situation appears worse considering the impressive lack of

homogeneity among the North and South. The backwardness of Italy, at national and local

level, indicates that Italy must fill this gap in order to ensure growth and competitiveness in

the Country, thus enabling it to operate in the global world.

3.1 The Model of Derived Finance: Traditional Public Investment Financing

Since the end of the 1960s, the Italian system of intergovernmental relations has been

characterized by the centralized power of the State endowed with a unitary, monolithic

structure. From the financial point of view, the system of intergovernmental relations has

been characterized by strong centralization of fiscal revenues and vast decentralization of

public expenditures, following a model defined as “derived finance”. For the most part, local

finances have become dependent on transfer payments coming from the national budget28,

which have caused the abolition of local taxes and an expansive trend of public expenditures,

especially current ones.

As one of the most relevant kinds of public good29 and in concordance with

decentralization theory, infrastructure is generally supplied by the public sector, and more

specifically by LAs, through the use of public money.

Considering that, by definition, investment decision requires enormous amounts of money

in the present in order to obtain future advantages, and considering the limitedness of their

own internal resources and the need to respect the principle of intergenerational equity, LAs

have financed investment by resorting mainly to debt30 (especially long term loans with a

27 The literature highlights the difficulty in making comparisons between public investments at international

level, particularly because of the lack of homogeneity in the headwords “public sector” and “public investment”.

Furthermore, the concept of infrastructure is not always defined in the same way. With regard to this issue, see:

Biehl, D., Brancalente, B., Di Palma, M., Mazziotta, C., (1990). “La diffusione territoriale delle infrastrutture:

un’analisi per l’Europa e per l’Italia” Di Palma, M., (edited by) Le infrastrutture a rete, in Centro Studi

Confindustria – Ecoter. Roma: Sipi. However, an idea about the Italian condition compared to the European and

world dimension can be formulated by consulting, respectively, the European Commission, (2006). European

Competitiveness Report 2006, http://ec.europa.eu/enterprise/enterprise_policy/competitiveness/index_en.htm,

and the Institute for Management Development, (2007). IMD World Competitiveness Yearbook 2007. Lausanne. 28 This institutional order was founded at a time when Italian LAs experienced great difficulty, during the

“reconstruction” after World War II. 29 Samuelson, P., (1954). “The Pure Theory of Public Expenditures” in The Review of Economics and

Statistics, November, pp. 387-398; Samuelson, P., (1955). “Diagrammatic Exposition of a Theory of Public

Expenditures” in The Review of Economics and Statistics, November, pp. 350-356. 30 Carnevale, R., (1999). “Il finanziamento degli investimenti: specificità, rischi e garanzie” in Banche e

banchieri, No. 4, pp. 320-338; Falcone, G., (2000). “Il finanziamento delle infrastrutture pubbliche: dal fondo

perduto al credito di investimento” in Mondo Bancario, No. 1, pp. 39-41; Passacantando, F., (1999).

“Finanziamento delle opere infrastrutturali: ruolo e orientamento della Banca Mondiale” in Rassegna

Economica, No. 2, pp. 285-295.

11

public organism, the Cassa Depositi e Prestiti S.p.A., CDP31). Over time, it has actually

become the “bank of LAs”, carrying out the public function of supporting Regions and LAs

by providing them with loans at more advantageous conditions than the banking system.

The presence of the CDP has reduced incentives for local administrators to improve their

ability to manage financial resources. Their activity has become limited to checking the

amount of money coming from their own municipal taxation and capital transfer payments.

3.2 The new model

At the end of the 1980s, the model of derived finance revealed all its contradictions and

resulted in an extraordinary rise in public expenditure and public deficits, in conflict with

European financial discipline. The convergence criteria stated by the Treaty of Maastricht and

the SGP have imposed a serious commitment to change.

In Italy, the reform process started with the Law June 8th 1990, No. 142, which is a

milestone in defining a renewed institutional, administrative and financial system for LAs. By

the end of the 1990s32, the Constitutional Law November 22

nd 1999, No. 1 and the

Constitutional Law October 18th 2001, No. 3redefined the institutional framework of the

State, recognizing equal institutional weight for the State, Regions and LAs, and expanding

the administrative functions and competences of LAs33. With specific reference to the

financial dimension of this new system, it is oriented toward the application of the models of

31 The CDP was established by the Law November 18

th 1850, No. 1097, on the model of the French entity

called Caisse des depots et consignations, established by the Law of April 28th 1816. See De Cecco, M., Toniolo,

G., (2000). Storia della Cassa Depositi e Prestiti. Roma: Laterza.

In order to respect and safeguard the European principles of free competition, the CDP has been deprived of

the monopolistic privileges that it has historically enjoyed, distorting the correct functioning of the market

(Legislative Decree July 30th 1999, No. 284, Art. 2 comma III) and it has been transformed into a joint-stock

company (even though the Treasury Ministry remains the main shareholder of the company). Salvemini, M. T.,

(2003). Il credito agli enti locali in Italia e in Europa. Cassa Depositi e Prestiti, banche pubbliche e private,

mercato finanziario. Roma: Bancaria. 32 With regard to the administrative decentralization process realized in the 1990s, see: Meloni, G., (2002).

Le autonomie territoriali tra riforme legislative e riforme costituzionali, Progetto Ripam, February. Roma:

Formez; Rosa, F., (2002). Parlamento e nuovo Titolo V della Costituzione: Alcuni interrogativi sull’assetto del

procedimento legislativo dopo la recente riforma. Mimeo,

www.unisi.it/ricerca/dir_eco/COMPARATO/rosa.doc.; Greco, L., Iacovoni, D., (2002). Decentramento della

finanza pubblica e finanziamento degli investimenti pubblici. Proposte per un mercato del debito pubblico

locale, Working Paper, University of Pavia, October 4th - 5

th.

33 De Grazia, S., (2002). “L’autonomia finanziaria degli enti territoriali nel nuovo titolo V della

Costituzione” in Le istituzioni del federalismo, No. 2, p. 266; Giarda, P., (2001). “Le regole del federalismo

fiscale nell’art. 119: un economista di fronte alla nuova costituzione” in Le Regioni, No. 6, p. 1426; Della

Cananea, G., (2002). “Autonomie e responsabilità nell’art. 119 della Costituzione” in Giornale di diritto

amministrativo, Vol. 67.

12

fiscal federalism34. The reformed Constitution (Art. 119) states the principle of financial

autonomy of income and expenditure for all governmental levels, that consists of their own

regional resources and grants coming from the equalizing fund35. Unfortunately, even if this

part of the constitutional reform is essential for guaranteeing the concrete application of a

decentralized system, it is still incomplete36.

3.3 The Internal Stability Pact

Following the Maastricht criteria and SGP restrictions, Italy has imposed severe

restrictions on the sub-national levels of governments, through the annual Internal Stability

Pact (ISP)37. Regions and LAs having more than 5,000 inhabitants

38 must attain the

progressive reduction of their borrowing level. This aim can be achieved through the

reduction of expenditures and an increase in efficiency and productivity. Over time, the

application of the ISP has proved extremely complex, particularly because of its continuous

annual updating through finance acts that reduce municipal autonomy, limit local capacity to

resort to debt, and restrict the budget and the financing of investments.

4. The Research Problem and the Methodology

Within the variegated scenario described above, LAs find themselves in an extremely

complex situation. The progressive reduction of the amount of transfer payments and grants

coming from the State budget and the absence of fiscal autonomy has dramatically limited

34 Among others: Ladu, G., (edited by) (2005). Percorsi del federalismo in Italia e non solo. Roma: Edizioni

Scuola Superiore della Pubblica Amministrazione; Antonini, L., (2005). Verso un nuovo federalismo fiscale.

Milano: Giuffrè. 35 The expression “own resources” means that Regions and LAs must be provided with their own taxes and

share of revenue taxes. Whereas the equalizing fund is defined as a function of the different fiscal capacity,

according to a system designed to ensure social solidarity. 36 The application of the subsequent Legislative Decree February 18

th 2000, No. 56, on fiscal federalism, has

experienced much difficulty, mainly due to the lack of precision and clarity in the concrete mechanisms for fiscal

federalism and the implied differences between the richest and poorest regions in the Country. 37 The ISP is established by Art. 28, comma II of the Law December 23

th 1998, No. 448 entitled “Financial

Measures for Stability and Development” (the Finance Act for the year 1999). With reference to the ISP, see:

Cavallini Cadeddu, L., (2005). La gestione delle autonomie tra rinnovamento e stabilità. Cagliari: Edizioni AV;

Perez, R., (2003). “La finanza pubblica” in Cassese, S., (edited by), Trattato di diritto amministrativo. Milano:

Giuffrè, pag. 590; Della Cananea, (2001). “Il Patto di stabilità e le finanze pubbliche nazionali” in Rivista di

diritto finanziario e scienza delle finanze, Vol. 4, p. 559; Balassone, F., Degni, M., Salvemini, G., (2002). Il

patto di stabilità interno: da vincolo esterno ad espressione dell’autonomia delle amministrazioni locali, XIX

Convegno nazionale di contabilità pubblica, Teramo; Cavallini Cadeddu, L., (2004). “La contabilità degli enti

territoriali e istituzionali” in Cavallini Cadeddu, L., Gallo, C. E., Giusti, M., Ladu, G., Lupò Avagliano, M. V.,

(edited by), Contabilità di Stato e degli enti pubblici. Torino: Giappichelli. 38 Nevertheless, the system defined by the Finance Act for 2007 (the Law December 27

th 2006, No. 296) has

signalled a change in direction, taking into consideration the support of municipalities with lower demographic

levels in their pursuit of European aims, and considering expenditures in terms of balances rather than spending

limits. The practical mechanism is very complex. See: Usai, S., (2007). “La legge finanziaria 2007, il nuovo

patto di stabilità e la necessità di una modifica legislativa” in La Finanza Locale, No. 4, April.

13

their capacity to act. The situation is worsened by the severe restrictions and pressure imposed

by the ISP on borrowing and on the level of interest paid each year.

In the literature, this condition is identified with the formula “capital rationing” 39. This is

the classical state of rationed, rather than unlimited capital, of public administrations in

systems of autonomous or semi-autonomous finance, where the current part of the budget is

heavily conditioned by their own resources and only in a marginal way by public transfers.

This condition emphasizes the inescapable necessity of operating in a more rational way, in

an attempt to achieve the best results with the limited financial resources available.

To face this critical situation, the financial function traditionally carried out by LAs

should no longer be considered as simply traditional fund raising, but also more innovative

fund management, based on an accurate strategic composition of different financing sources

and on liability management. The rationing of financial resources is of extreme relevance with

reference to investment expense. IMs seem to be compelled to move in two directions:

1. recourse to “innovative finance” (sophisticated financial strategies, instruments and

techniques), set alongside traditional finance;

2. an increase in the rationality of management and decisions, to ensure greater transparency

and accuracy in the selection of a financial solution, avoiding or at least limiting

dispersion of public financial money.

Overall, the various kinds of local financing instruments are listed in the following table:

Table 1 Investment Financing Instruments for Italian LAs FI&A&CI&G I&STRUME&TS

TRADITIO%AL FI%A%CE I%%OVATIVE FI%A%CE

OWN FUNDS - current incomes destined to investment by law;

- budget surplus, constituted by surplus of current incomes

on the current expenses plus the quota for loan amortization;

- incomes coming from alienation of patrimonial assets and laws,

drawing of credits, incomes from concessions and relative

sanctions;

PROPER INNOVATIVE FINANCE - bond issue;

- project financing;

- opening credit;

- leasing;

REVENUES FROM TRANSFERS - from the national budget;

- from the regional budget;

- from other public and private organization, especially EU;

DEBT MANAGEMENT INSTRUMENTS - operations of derived finance: swap of interest rates,

options;

- re-negotiation of previous loan conditions with CDP;

- securitization;

LOANS contracted with the - CDP;

- Istituto per il Credito Sportivo;

- banking system;

39 Among the Italian authors, Boccia, F., Nigro, M., (2000). La finanza innovativa. Boc, Bop, Bor, Swap e

mutui: costi e opportunità per non sbagliare investimento. Milano: Il Sole 24 Ore; Boccia, F., (2002a).

Economia e finanza delle amministrazioni pubbliche. Milano: Guerini. Among international scholars, Sherwood,

C. F., Bradley S. P., (1979b). “Capital Rationing and Discounting in Public Sector Investment Decision” in

Omega, Vol. 7, No. 1, pp. 77-79.

14

The new system requires local administrators to develop a new approach, based on high

levels of competence and renewed financial sensitivity, in order to identify “opportunities”.

The hypothesis of this research is that, in a restrictive condition of limited financial

resources and severe fiscal discipline, the recourse of IMs to innovative finance appears to be

an inescapable choice. The study aims to verify if IMs are really resorting innovative finance

and, if so, at what level. It also attempts to identify the elements that are considered to be of

fundamental relevance for LAs in making decisions with regard to the most suitable financing

choices.

4.1 The Traditional and the Proposed Approach

Generally, the approach of mainstream literature to these themes has focused attention on

a deep and detailed framework of innovative finance, which embodies the new approach to

local finance. At the same time, studies and research have concentrated on an exhaustive

analysis of each innovative financing instrument, its implications and its impact on the

budget40. Over time, a wide range of possible financing instruments has been created to

overcome the financial difficulties of the LAs. However, these new instruments also created

the problem of how to find an appropriate choice among the various possibilities. The

impossibility of establishing whether one form is more convenient than the others in an

absolute perspective, has produced a complex problem within the LAs.

The relevant global transformations described above that have occurred over the last two

decades have resulted in a new articulation of the powers that regulate the world, and the

discovery of new approaches and tools that are able to analyse the increasing complexity of

world phenomena, also within the public administration researches.

A valid kind of approach is the analytic one based, case by case, on the rational

evaluation of the situations for which formulation of a judgement is proposed, by respecting

some defined parameters. This approach adopts a formal, rigorous, and repeatable structure of

reasoning, and concerns limited issues. It can be usefully applied to decision making, a

process of choosing among alternative courses of action, in order to obtain goals and

40 Boccia, F., (2002a). Economia e finanza delle amministrazioni pubbliche. Milano: Guerini e Associati;

Boccia, F., Nigro, M., (2000). La finanza innovativa. Boc, Bop, Bor, Swap e mutui: costi e opportunità per non

sbagliare investimento. Milano: Il Sole 24 Ore; Falini, A., (2000). La strategia economico-finanziaria degli enti

locali: prestiti obbligazionari e finanza di progetto. Milano: Guerini; Meola, A., Antonelli, R., (2004). Strategia

finanziaria e finanza innovativa nell'ente locale. Rimini: Maggioli; Pignatti, O. (2001). Le politiche di gestione

della liquidità e i nuovi strumenti finanziari degli Enti locali. Rimini: Maggioli; Salvemini, M.T., (2002). Il

credito agli enti locali in Italia e in Europa. Roma: Bancaria; Boccia, F., (2002b). Italian Local Governments:

The Growing Space for Economic-Financial Strategy, Luic Papers, Serie Economia e Istituzioni, No. 5.

15

objectives41. However, analytical problem-solving approaches generally have an essentially

quantitative nature and incapable of incorporating qualitative factors that, however, appear to

be extremely relevant in a decision process. While, the financial decision-making process in

IMs appears to be an extremely complex matter, affected by a large number of factors. Some

of them are directly measurable, but some are not easily perceptible. This limitation of the

analytic approach can be overcome using the Analytic Hierarchy Process (AHP) – Analytic

Network Process (ANP), a multiple criteria methodology. It is able to consider,

simultaneously, factors of a quantitative and qualitative nature (or rather tangible and

intangible variables), that are thought to play an important role in local financial decision-

making.

The AHP/ANP is a decisional support methodology that was developed by T.L. Saaty at

the end of the 1960s at the Wharton School of the University of Pennsylvania. Since its

introduction, Saaty’s method has been widely used in decision-making, and numerous

applications have been published in literature. It is based on a fundamental assumption:

complexity can be reduced and better understood42. A complex problem, in a scenario

influenced by multiple independent factors, can be decomposed into several simpler sub-

problems, through a “tree structure” as a hierarchy, following the principle of decomposition

and dominance. When there are interrelations between factors, the ANP can provide a better

representation43, in order to reach the optimal decision

44.

4.2 A Brief Review of AHP and ANP Applications

With specific reference to the issue of financing public investment, some applications of

the AHP have been made to improve efficiency in the allocation of resources within a list of

investments. In this direction, the work of Barbarosoglu and Pinhas (1995)45 applies AHP to

the condition of capital rationing in the public sector, and particularly, the study of Chan

41 There is a vast amount of literature about decision-making. Above all, Edwards, W. (1954). “The Theory

of Decision-Making” in Psychological Bulletin, Vol. 51, No. 4, July, pp. 380-417; Simon, H. A., (1959).

“Theories of Decision-Making in Economics and Behavioral Science” in The American Economic Review, Vol.

49, No. 3, June, pp. 253-283; Kaplan, M., Schwartz, S., (1977). “Human Judgment and Decision Processes in

Applied Settings” in Academic Press Series in Cognition and Perception. New York, London: Academic Press,

Inc.. 42 Saaty, T. L., (1980). The Analytic Hierarchy Process: Planning, Priority Setting, Resource Allocation.,

New York: McGraw-Hill. 43 Saaty, T. L., (2005). Theory and Applications of the Analytic %etwork Process. Decision Making with

Benefits, Opportunities, Costs, and Risks, Pittsburgh: RWS Publications. 44 It is important to underline that in most cases, especially related to public policies, the optimal decision is

not attainable and should be replaced by the second best choice. 45 Barbarosoglu, G., Pinhas D. (1995). “Capital Rationing in the Public Sector using the Analytic Hierarchy

Process” in The Engineering Economist, Summer.

16

(2004)46, with reference to Canadian municipalities, from which the idea of applying the ANP

has been drawn.

In Italy, the AHP has been mainly applied in engineering, especially with regard to

transport projects. Moreover, the AHP has been used as an instrument to obtain a ranking for

the projects which are to be financed, following the suggestion of the Public Investment

Evaluation Unit (Autorità per la vigilanza sui lavori pubblici)47

. Rostirolla’s research studies

(1988, 1992, 1998)48, apply the AHP to a project for improving the highway between Naples

and Salerno (known as A3) in Italy, and an experimental application in the Emilia Romagna

region, in relation to the financing of viability projects49. To my knowledge, no applications

have been found for the topic of this research and this study may, therefore, be considered the

first attempt of its kind to be conducted in Italy.

5. The Empirical Application

5.1 Formulation of the Model

In the condition of municipal capital rationing, IMs have to make a fundamental choice,

between Traditional finance and Innovative finance. As highlighted by the major literature

about local finance’s investment decision, this decision is made by respecting some

constraints, and considering a series of criteria of various natures. It is represented by a model

formed by constraints, criteria and sub-criteria, and alternatives, as explained in the following

box:

Box &o. 1 The elements of the model

The Constraints: divided into two categories, under the items of Legislative Constraints and Budgetary Constraints.

The Legislative one is referred to the restrictions established by the national legal framework that municipalities are obliged to

respect:

- a destination restriction: imposed by the Art. 5 of the Constitutional Law October 18th 2001, No. 3, which states that

municipalities, provinces and regions can recur to debt only to finance investment expenses;

- a definition restriction: established by the Finance Act for the 2004 (the Law December 24th 2003, No. 350), that defines the

borrowing mechanisms;

46 Chan, Y., L., (2004). “Use of Capital Budgeting Techniques and an Analytic Hierarchy Approach to

Capital Investment Decisions in Canadian Municipal Governments” in Public Budgeting and Finance, Vol. 24,

No. 2, pp. 40-58. 47 Since July 1

st 2006, after the Legislative Decree April 12

nd 2006, No. 163, the unit has been named Public

Investment Evaluation Unit (Autorità indipendente per la vigilanza sui contratti pubblici di lavori, servizi e

furniture). It suggests the employment of AHP in the Determination No. 16/2002. 48 Rostirolla, P., (1988). Scelte pubbliche. Approcci interattivi multi-criterio di aiuto alla decisione. Napoli:

Liguori; Rostirolla, P., (1992). Ottimo economico: processi di valutazione e di decisione. Napoli: Liguori;

Rostirolla, P., (1998). La fattibilità economico-finanziaria. Napoli: Liguori. 49 Regione Emilia Romagna – Servizio Viabilità (2004). Progettazione e sperimentazione di un modello di

selezione dei progetti a supporto del programma triennale di intervento sulla rete viaria di interesse regionale

della Regione Emilia – Romagna, Bologna: Mimeo.

17

- an objective restriction: referred to the conditions to recur to borrowing (Art. 203 of the Legislative Decree No. 267/2000): LAs

can contract debt if the financial statements of the two previous financial years must have been approved, and if the budget

must indicate what kind of expenses will be financed through the new funding;

- a quantitative restriction: represented by the borrowing availability: municipalities can contract new loans only under strict

quantitative limits indicated by the Art. 204 of the Legislative Decree No. 267/2000.

The Budgetary Constraints are referred to relevant parameters established by law, such as the deficit condition to avoid destabilizing

situations, budget equilibrium, and ISP restrictions to control the level of debt and financial flows.

The Criteria: these factors should be the basis of reference above which local administrators can make their choice, after having

respected the legal framework (Constraints). The decision is made according to 5 kinds of Criteria that have been named as:

Financial, Economic, Political, Technical, and Patrimonial factors.

Each one of the five Criteria listed above has more than a single dimension. In fact, each single dimension is represented by a

number of Sub-criteria.

As for the Financial factors50, it is the primary element in the private as well as the public sector for every kind of expenditure.

Overall, the financial profile considers the operation in the perspective of the contribution that it is able to give to the formation of

the need of capital requirements and to their financing, as well as the relation between income and expense cash-flows, in order to

direct the managing toward a condition of cash-flow equilibrium. Firstly, in the category of Financial factors have been included the

effect of Risk and the Level of interest rates.

Traditionally, the use of financial analysis to decide about an investment project is not very common in the Italian public sector.

Rather, decisions are made simply following the prescriptions imposed by law. Instead, the business approach requires a specific

attention to financial factors.

In the attempt to verify whether IMs are changing their approach to financing investment, beginning to use business techniques that

can help their choices to be more rational, therefore, also the capital budgeting techniques (Brealey, Myers, 1999; Parmentola,

2004)51, used in the private investment decisions, have been considered. So, some financial indicators have been included, such as

primarily the Internal Rate of Return (IRR) and the %et Present Value (%PV)52

, used to check the economic convenience, and the

financial feasibility.

The second criterion is represented by the Economic factors53. According to the economic perspective, an operation is connected

with its economic result, based on a correlation between costs and incomes associated with the investment projects, to reach a

condition of economic equilibrium. The criterion has been decomposed into two sub-criteria referred to the direct cost associated

with each financing possibility (Economic cost) and the corresponding Opportunity cost, intended as any possible alternative use of

money.

The third criterion has been named Political factors54, a crucial variable that affects the municipal decision-making. Generally,

political factors recognized to be characterized by high intangibility, such as the assumption that politicians are involved with the

need to get re-elected, and keep their job. For this reason, they are deep interested in the public perception of their action: a positive

50 Boeri, T., Cohen, R., (1998). Analisi dei progetti di investimento. Teoria e applicazioni per il project

financing. Milano: Egea; Parmentola, N., (2004). Investimenti pubblici e processo decisionale. Roma: Centro di

Formazione Studi Formez; Brealey, R. A., Myers, S. C., Sandri, S., (2003). Capital Budgeting. Milano:

McGraw-Hill; Argaawal, R., (2000). Capital Budgeting Under Uncertainty. London: Prentice Hall. 51 Brealey, R. A., Myers, S. C., (1999). Principle of Corporate Finance. New York: McGraw-Hill;

Parmentola, N., (2004). Investimenti pubblici e processo decisionale. Roma: Centro di Formazione Studi

Formez. 52 A part from the two indexes considered for the model, there are other typologies of indexes included into

the capital budgeting techniques, such as the profitability index, the accounting rate of return, the payback

period, and the breakeven time. Among all, only the two indicators quoted in the text have been chosen because,

according to the quoted literature, those are the most common. Particularly, Brealey, R. A., Myers, S. C., (1999).

Principle of Corporate Finance. New York: McGraw-Hill supplies a clear explanation of these indicators. And,

also read Bierman, H., Smidt, S., (1990). The Capital Budgeting Decision: Economic Analysis of Investment

Projects, 7th edition. New York: Macmillan Publishing Company.

53 Nichols, A., (1964). “The Opportunity Costs of Public Investment: Comment”, in The Quarterly Journal

of Economics, Vol. 78, No. 3, August, pp. 499-505; Schwartz, E., (1970). “The Cost of Capital and Investment

Criteria in the Public Sector” in The Journal of Finance, Vol. 25, No. 1, March, pp. 135-142. 54 Rostirolla, P., (1988). Scelte pubbliche. Approcci interattivi multi-criterio di aiuto alla decisione. Napoli:

Liguori; Rostirolla, P., (1992). Ottimo economico: processi di valutazione e di decisione. Napoli: Liguori. In

addition, also refer to Hirschman, A. O., (1970). Exit, Voice, and Loyalty. Responses to Decline in Firms,

Organizations. And States. Cambridge: Harvard University Press; Wildawsky, A., (1984). The Politics of

Budgetary Process. Boston: Little Brown.

18

attitude of the community toward their mandate, increases their possibility to be re-elected. To satisfy this need, generally,

politicians do not act objectively, but, like each person, pursue their own self-interest in retaining power be getting re-elected.

The category has been articulated with reference to four Sub-criteria, named: Public perception, that means the effect that municipal

decisions can produce on their community; the Re-election, linked to the primary objective of the political class (at the national as

well as at the local level) such as to be re-elected; the Satisfaction of election promises; and the Power of the opposition party.

The forth criterion is named Technical factors. It refers to the attitude of public administrators toward innovation, especially in the

financial area55. Specifically, this research considers the time required by each administrative procedure (Time necessary), the

Complexity of the administrative procedure (Procedure complexity), and the Competences of the public personnel as important

elements in choosing traditional versus innovative financing solutions. The building of the category Technical factors has been based

on the idea that procedures connected with the Innovative finance are supposed to be more complicated if compared with the ones

required by the Traditional Finance, at least because they represent something new. Consequently they require a major effort by the

public administrators.

Finally, the last criterion has been called Patrimonial factors (Bellesia, 2001, 2002)56. It includes this criterion because an overall

evaluation of the real estate property of the municipality gives a global picture of the financial solidity of the entity. This factor is

composed by two sub-components: the Estate value of the administration and the specific Analysis of its components.

Finally, the model includes two kinds of financing Alternatives, named Traditional Finance and Innovative Finance57.

A graphical representation of the so structured ANP model is shown below:

55 Meneguzzo, M., (2003). Manuale di finanza innovative per le amministrazioni pubbliche. Roma:

Rubettino. See also Pignatti, O., (2001). Le politiche di gestione della liquidità e i nuovi strumenti finanziari

degli enti locali. Rimini: Maggioli. 56 Bellesia, M., (2001). Manuale di contabilità per gli enti locali. Bergamo: Collana Editoriale Anci;

Bellesia, M. (2002). Analisi di bilancio. Dai dati contabili alle valutazioni di efficacia e di efficienza. Milano:

Ipsoa.

57 In the model, the financing alternatives are considered as control criteria like the constraints. So, pairwise

comparisons among the elements of the model are made also with reference to the Alternatives. In addition, the

clusters of Constraints and Alternatives present interdependencies within the same level of analysis. Elements

within these clusters clearly have interrelated relationships among them. So, while a simple arc is used to

connect elements, in these cases looper arcs are used to show such interdependencies within the same level of

analysis.

19

Figure 1 Graphical Representation of the A&P Model

5.2 The Observation Field and the Method of Detection

The observation field used for this research consists of a population of municipalities

located in the province of Frosinone in the Lazio region, in the central part of Italy, where

there are, overall, 91 municipalities. The analysis refers to a population of 23 municipalities,

selected on the basis of the prescriptions imposed by the European SGP. Through the ISP, at

the national level, these directions regard the IMs with more than 5,000 inhabitants58, a

critical quota because it is the point of reference for deciding which municipalities are obliged

to comply with EU limits. The IMs chosen for this research are listed in the Appendix No. 1

of this paper.

The empirical part of the study has been developed by conducting surveys (through

interviews and a questionnaire59) with the population of the selected municipalities, with the

financial officer, who is the figure with the highest level of knowledge about finance in the

58 The correctness of the demographic level lays on the demographic statistics elaborated by the Italian

National Institute of Statistics (ISTAT), updated at January 1st 2006. According to the Italian legislation (Art.

156 of the Legislative Decree No. 267/2000, concerning Demographic Classes and Resident Population),

municipalities have been divided into three demographical classes, on the basis of the number of inhabitants. The

first class is composed of 12 municipalities, with a population between 5,000 and 9,999 inhabitants. The second

is composed of 3 municipalities between 10,000 and 19,999 inhabitants. The third class is made up of 8

municipalities between 20,000 and 59,999 inhabitants. 59 The questionnaire redacted on an ad hoc basis for this research, in the original language, is available from

the author upon request.

20

municipality, and whose function is to support the administration in identifying the most

appropriate financing solutions.

6. The results

Questionnaires show that none of the examined municipalities explicitly defines a

strategic financial analysis60, nor is financial analysis used in making the necessary

assumptions for producing budgeting decisions.

Instead, during the financial year, administrations periodically check the trends of some

important budgetary indicators simply by giving application to the law. If these indicators

were consciously and strategically managed, they would give relevant information to the

administration, but unfortunately, they are not checked with the aim of following a strategic

approach, but only as a legal obligation. Medium-sized municipalities apply the prescriptions.

This effort decreases in larger organizations. Small municipalities, on the other hand, pay less

attention to this kind of index.

The data seem to suggest that municipalities conduct some kind of indexes analysis, in

various forms and to various degrees. However, they perform these analyses by rigidly

following the legal prescriptions, rather than the principles of a strategic and entrepreneurial

approach. These results confirm the perception that was initially in the study: decision-

making in IMs is still far from being enacted in a context of efficiency and effectiveness.

Despite a long series of new public management reforms introduced over the last decade,

decision-making in Italy is still focused on a traditional legal perspective rather than on results

and performance-based approach. The bureaucratic and formalistic approach is still very

evident in the behaviours of administrative personnel. They apply every rule with precision,

but they avoid any implementation of the NPM principles, and any form of accountability.

There is also a complex system of internal competences and roles used in defining the

financial strategy of the administration: the main role is performed by the person in charge of

the financial unit, but technical and political figures are also involved. Moreover, the financial

personnel periodically attend training courses on innovative finance, but not on financial

strategy and capital budgeting techniques for evaluating investment projects and giving

60 The expression strategic analysis means the analysis of the principal economic and financial indexes

related to the latest budgets, in order to realize how solid the organization is from the financial point of view, the

financial solidity of the organization, the real capacity of investment and borrowing, the overall financial,

economic and patrimonial managing (Bellesia, M., (2002). Analisi di bilancio. Dai dati contabili alle valutazioni

di efficacia e di efficienza. Milano: Ipsoa). It should be conducted with the aim of having a picture of the

organization’s situation, its level of autonomy, its structural rigidity, its borrowing capacity, and the

dependability of the debtor situation.

21

support in the identification of possible financing solutions. IMs do not, therefore, have the

ability to perform financial analysis. From the interviews conducted in these IMs, we

discovered that the only elements they consider relevant for their investment decisions are

interest rate levels and risks. Moreover, the scarcity of personnel in the IMs is another

problem that complicates the situation. In fact, the restrictions imposed through/by the ISP

also limit new hiring. In municipalities, there are often only two or three people in the

financial area - for this reason they generally prefer the easier path of standardization and

simplification of procedures.

With reference to the distinction between traditional and innovative financing instruments,

the survey data show a clear prevalence of traditional finance, which is used by all the

organizations. Innovative finance, on the other hand, is used much less.

Municipalities mainly finance investment expenditures by resorting for the most part to

CDP loans (100% of the selected municipalities), and capital transfers (95.5%). Recourse to

the CDP is considered the best way of guaranteeing the lowest and most convenient interest

rates, of reducing the risk connected to the choice of financing instruments, and of ensuring a

simple and standardized procedure that does not require any particular competence or extra

time. The municipalities examined consider CDP loans and capital transfers the most

convenient and least complicated way of financing investment decisions. They rely on the

competence of the CDP, thereby avoiding any complex in-house evaluation of alternative

financing methods.

Transfer payments coming from the regional budget are also considered an easy solution.

Actuality, municipalities also use Incomes from other kind of operations (such as alienation of

patrimonial assets and laws, drawing of credits, incomes from concessions and relative

sanctions), and Current incomes destined by law to investment. They resort to the banking

system to a lesser degree, and also for loans contracted with the Istituto per il credito sportivo.

And, finally, the Budget surplus, because it is available in very few municipalities.

As regards Innovative finance, we can observe only a very limited use of these

instruments. The highest numbers can be found in two entries: Derived finance (in particular,

swaps of interest rates rather than options), and the Renegotiation of conditions of previous

loans contracted with the CDP. A tiny amount is found for the entry of municipal bond issues

in the municipalities. With regard to this last kind of instrument, it would be important to

check whether the municipalities that use the bond issue instrument employ it in the proper

way, i.e. in order to finance investment. Local governments can often be seen to use the bond

issue to cover current expenditures. Consequently, it would be interesting to know whether

22

this method has been used for investment financing or, instead, for financing the deficit. This

latter solution would be unfortunate for municipal finances.

These facts reveal high standardization of the procedures, and a poor attitude towards

Innovative finance.

The last part of the questionnaire is related to the evaluation made by the organization in

choosing the financing instrument. In this phase, most of the organizations (64%) base their

choice on the lowest cost associated with the form of financing, whereas 36% of the

organizations make a broader evaluation. Moreover, considering that capital investment

implies non-tangible costs and benefits, all of the IMs selected answered that, on a scale

between %ot at all and Completely, they attribute an extremely high value to non-measurable

factors, in terms of both costs and benefits.

This datum is explained by the awareness of IMs that their financial decision-making is

seriously affected by these kinds of factors, yet they are not able to measure them.

Consequently, the final choice is eventually conditioned by the elements they can refer to

directly, such as the cost and level of interest rates. More specifically, the factors that are

mostly taken into consideration are the level of interest rates, the most comprehensive

financial convenience (68.2%), economic convenience (63.6%), and risk (54.5%). High

values are also associated with the time necessary for funding supplying (45.4%), and the

time necessary for the specific administrative procedure (40.9%).

Finally, the application of the ANP to the framework described has given a system of

priorities for the population of municipality, that have been entered into the SuperDecisions

software overall

61.

Results of the ANP application (Computation Synthesized) are synthesized in the

following table and figure, in terms of the priorities associated with each Alternative. Results

are report in three different forms, the %ormalized, the Ideals and the Raw one:

Table 2 Overall Synthesized Priorities for the Alternatives

&AME IDEAL &ORMALIZED RAW Innovative Finance 1.000000 0.767949 0.400424

Traditional Finance 0.302170 0.232051 0.120996

61 The SuperDecisions Software can be downloaded free from the web site www.creativedecisions.com..The

overall system of priorities has been entered into the SuperDecisions using the geometric mean of every kind of

pairwise comparisons, obtaining a unique value for each comparison. The use of the geometric mean is the only

way of combining judgments that are able to respect reciprocal property, as required for the AHP, and the ANP.

See, Saaty, T. L., Peniwati, K., (2008). Group Decision-Making: Drawing Out and Reconciling Differences.

Pittsburgh: RWS Publications. The ANP application generated four matrices (the Unweighted supermatrix, the

Weighted supermatrix, the Limit supermatrix, and the Cluster matrix), which represent the system of priorities

attributed by the population of municipalities to the problem represented. Matrices are available upon request

from the author.

23

Figure 2 &ormalized Priorities for the Alternatives

Traditional

Finance

Innovative Finance

Results clearly show that in the network form, the best financing solution (made with

regard to the considered constraints and according to the set of criteria and sub-criteria

explained above), should be Innovative Finance, rather than Traditional Finance. This result

is, partially, the opposite of the data obtained from interviews and surveys which, in fact,

show an embryonic employment of Innovative Finance. On the contrary, the evidence shows

the predominance of Traditional Finance.

We refer in particular to the central columns, containing the Normalized Values, which

attribute a higher priority (0.767949) to Innovative Finance, whereas Traditional Finance has

been associated with a low priority (0.232051). In practice, the application attributes priority

of about 76,80% to Innovative Finance, and only a priority of 23,2% to Traditional finance.

As a result, the application of the ANP shows that Innovative Finance for local

investments should be preferred to Traditional Finance in a condition of capital rationing.

Clearly, the application of the model strongly suggests that the condition of capital

rationing should push IMs to choose innovative financing instruments. This is in stark

contrast with the experience in Italy where reality shows a persistent use of the traditional

financing forms. The interviews and the surveys show skepticism toward innovative finance.

In particular, especially at the local level, lack of knowledge is a strong disincentive to using

the new mechanisms. Public personnel who are not sufficiently trained for a result-oriented

administration are reluctant to be accountable for their management. For the most part, they

prefer a precise and rigid respect of the formal prescriptions of the law because they are not

sufficiently encouraged or trained to use any other system.

Innovative finance is very complex and requires highly qualified personnel. In addition, it

implies a heavy burden of risk.

In a context of Budgetary Constraints, IMs overall attribute great importance to Financial,

Political, Economic, Technical, and Patrimonial factors, precisely in this order. In particular,

they base their choices on the level of interest rates, and the risk (Financial factors) of the

24

operations. Moreover, choices are strongly conditioned by Political factors, linked to Re-

election, to Public Perception, (much less to the Power of the opposition party).

The great influence assumed by the political dimension (due to the high level of priorities

associated with this component) within the financial decision-making process suggests that

IMs are not making their financing choices by following strategic and analytical methods, but

by taking into consideration factors that are of a markedly political nature. As was presumed

during the formulation of the model, relevant weight must be given to political factors.

Politicians are concerned with the need for re-election and keeping their jobs. To satisfy this

need, these political representatives often do not act objectively, but like all people, pursue

their own personal interest in retaining power by getting re-elected.

The implications of this phenomenon are well explained by Saaty (2007)62: “This may be

one reason why the scientist whose work requires objectivity does not see politics as a good and useful

way of doing things because by its very nature it does not optimize, due to the need of the politician to

retain power to continue making decisions is so high on the list. In politics, people must make

tradeoffs and accept less. This is a process of sub-optimizing, and it is here to stay”.

Sub-optimality in the public sector is a condition that is accepted and well-explained by

many theories. It is related to the very nature of public action and is not contested. But while

sub-optimality can be accepted, sub-efficiency and sub-effectiveness are not tolerable. On the

contrary, the lack of financial resources requires more rational choice. So decision making in

politics is very different from decision making in business.

In itself, this behaviour does not have negative connotations. Or rather, it is quite common

and legitimate, especially at the municipal level. The problem stems from the prevalence of

these political factors over any other forms of rationality in the decision process.

To ensure that the outcome of the above application has not been constructed on

whimsical judgements, a sensitivity analysis of the model has been carried out. It helps to

determine the robustness of a model, testing a plausible range of values for each criterion to

determine how sensitive the outcomes are with respect to changes in the inputs estimates. The

sensitivity analysis was performed with regard to the main relevant elements that had been

previously identified, for example Financial factors first and Political factors later, but the

data do not seem to show any significant change in results. Consequently, Innovative Finance

is confirmed as being the best choice, within the considered framework.

62 Saaty, T.L. (2007). “Multi-decisions decision-making: In addition to wheeling and dealing, our national

political bodies need a formal approach for prioritization” in Mathematical and Computer Modelling, Vol. 46,

pp. 1001-1016.

25

In addition, at the beginning, the idea was to make a sort of comparison of the results

obtained from the three demographic classes in the sample, in order to verify if the

demographic dimension and, therefore, the size of the municipality could affect the choice. In

the subsequent stage, the substantial homogeneity of results obtained from interviews and

questionnaires, pushed toward a global evaluation of the result. However, an attempt was also

made to verify if the different demographic level could generate differences in the results. The

model formulated above was therefore employed for each demographic class considered

singularly. There are no significant differences in all three attempts when the number of IMs

is divided into the three sub-classes. Consequently, the demographical difference does not

appear to be a relevant factor in implying differences in the behaviours of public

administrators.

I also tried to analyse whether the problem could be formulated in the Hierarchical form,

in an attempt to verify if this formulation would give similar results. The model was built by

taking into consideration the same components as the network form. The only change we

made in this case was that we considered them as a hierarchy. In this case, too, the Goal, such

as choosing the best financing instrument within the two broad categories (Traditional

Finance and Innovative Finance), was reached by considering the Constraints, and the

Criteria and Sub-criteria, as described above for the ANP formulation. The results obtained

show no differences from the network form described above. In fact, even if there are some

clear differences in the structure of the issue, when we look at the final result, we do not note

any relevant dissimilarity. There is a structural reason for different results with respect to the

network form, due simply to a different formulation of the problem. Apart from this, in the

results, we can observe a great similarity to the network structure.

7. Conclusion

The hypothesis of this research that, in a situation of scarce resources and tight fiscal

discipline, IMs are forced to resort to innovative finance to realize public investment, appears

to be only partially satisfied. Most municipalities prefer the more traditional financing

instruments. They have only minimal and embryonic recourse to innovative finance.

Specifically, it emerged that IMs finance their investments predominantly by contracting

loans with the CDP, and by capital transfers. Municipalities also use the re-negotiation of the

conditions of previous mortgages contracted with the CDP. In order to restructure the debt,

they essentially employ operations of interest rate swaps. Fundamentally, choices are based

on the level of interest rates, and the risk associated with each financing solution.

26

Generally, there is reluctance to use innovative finance, due to the persistence of a

legalistic approach, and a limited knowledge of the innovative instruments available, which

require the application of financial analysis. These results have a series of implications.

IMs are experiencing a period of widespread malaise and uncertainty. This critical

condition should entail an enhancement of rationality and managerial culture within the public

sector. However, analyses show great resistance to the adoption of a model oriented towards

results and the evaluation of performance. In fact, public procedures and activities are

conducted only by giving relevance to a precise and accurate observation of legal rules and

public administrators do not appear to be motivated.

Further, this study also confirmed the important role played by intangible variables, such

as political factors, in decision-making. IMs still appear to be far from expressing the

dichotomy between policy and administration, which is one of the core components of the

NPM paradigm, and yet an increase in the rationality of decision-making should be important.

To this end, the direct implementation of the ANP within the municipal decision process

could be a valid support. Also more attention to the education of public managers, and to the

re-training of public administrators could help, in order to allow them to really handle

instruments, and acquire a strategic entrepreneurial attitude. Behaviors and instruments should

be used to obtain the maximum level of public utility, especially for public investments, since

taxpayers/citizens are demanding more accountability and results for the tax money spent on

public services, municipal administrators should try approaches that have proved successful in

other Countries.

An alternative solution would be to create specialized organisms at a provincial or

regional level, that are able to support IMs in dealing with the complex instruments of

innovative finance according to the peculiarities of the territory and the communities

involved. These organisms should be composed of professional, autonomous, and

independent personnel. This role cannot be performed by the CDP, since it operates at

national level with a uniform approach.

Furthermore, a more concrete and adequate employment of the system of managerial

controls could help, together with cooperation by the civil society which, through the use of

the social budget, may check the behaviors of both political representatives and local financial

administrators. Finally, political and financial officials should be fully engaged in the

development and implanting of ethic principles and behaviors. Ethics applied to policy and

public administrations should favor a more transparent decision process, thereby creating the

conditions for correctness and virtuosity.

27

On the side of methodology, this research has offered a great opportunity in attempting

the application of this innovative technique to a specific local area. Employment of this

method has been proposed in a simplified form and much more needs to be done. Further

research could relate to a more complex representation of local financial decision dynamics,

or could also concern broader applications (at regional or metropolitan level), and

comparative analyses, such as between the North and South of Italy, or between ANP and

other kinds of analysis.

Appendix &o. 1 The Population of IMs

&AME OF MU&ICIPALITIES &UMBER OF I&HABITA&TS I CLASS: 5,000 – 9,999 Inhabitants

AQUINO 5,314

RIPI 5,395

PIEDIMONTE SAN GERMANO 5,427

ARCE 5,973

SANT’ELIA FIUMERAPIDO 6,284

CERVARO 7,109

ROCCASECCA 7,501

ARPINO 7,697

PALIANO 7,928

CEPRANO 8,369

BOVILLE ERNICA 8,927

FIUGGI 9,152

II CLASS: 10,000 – 19,999 Inhabitants ISOLA DEL LIRI 12,124

MONTE SAN GIOVANNI CAMPANO 12,840

PONTECORVO 13,234

III CLASS: 20,000 – 59,999 Inhabitants VEROLI 20,219

FERENTINO 20,568

ANAGNI 20,888

CECCANO 22,499

SORA 26,431

28

ALATRI 28,078

CASSINO 32,603

FROSINONE 48,600

References

Acconcia, A., Del Monte, A., (2000). “Regional Development and Public Spending: the Case of Italy” in Studi

economici, Vol. 55, No. 72

Anthony, R. N., Young, D.W., (1988). Management Control in %onprofit Organizations. Illinois: Irwin, Homewood

Anthony, R.N., (1978). Financial Accounting in %on-business Organizations. An Exploratory Study of Conceptual

Issues. Stamford, Connecticut: Financial Accounting Standard Board

Antonini, L., (2005). Verso un nuovo federalismo fiscale. Milano: Giuffrè

Argaawal, R., (2000). Capital Budgeting Under Uncertainty. London: Prentice Hall

Bache, I., Flinders, M., (2004). Multi-Level Governance. Oxford: Oxford University Press

Balassone, F., Degni, M., Salvemini, G., (2002). Il patto di stabilità interno: da vincolo esterno ad espressione

dell’autonomia delle amministrazioni locali, XIX Convegno nazionale di contabilità pubblica, Teramo

Barbarosoglu, G., Pinhas D. (1995). “Capital Rationing in the Public Sector using the Analytic Hierarchy Process”

in The Engineering Economist, Summer

Bellesia, M., (2001). Manuale di contabilità per gli enti locali. Bergamo: Collana Editoriale Anci

Bellesia, M. (2002). Analisi di bilancio. Dai dati contabili alle valutazioni di efficacia e di efficienza. Milano: Ipsoa

Biehl, D., Brancalente, B., Di Palma, M., Mazziotta, C., (1990). “La diffusione territoriale delle infrastrutture:

un’analisi per l’Europa e per l’Italia” Di Palma, M., (edited by) Le infrastrutture a rete, in Centro Studi

Confindustria – Ecoter. Roma: Sipi

Bierman, H., Smidt, S., (1990). The Capital Budgeting Decision: Economic Analysis of Investment Projects, 7th

edition. New York: Macmillan Publishing Company

Boccia, F., Nigro, M., (2000). La finanza innovativa. Boc, Bop, Bor, Swap e mutui: costi e opportunità per non

sbagliare investimento. Milano: Il Sole 24 Ore

Boccia, F., (2002a). Economia e finanza delle amministrazioni pubbliche. Milano: Guerini

Boccia, F., (2002b). Italian Local Governments: The Growing Space for Economic-Financial Strategy, Luic Papers,

Serie Economia e Istituzioni, No. 5

29

Boeri, T., Cohen, R., (1998). Analisi dei progetti di investimento. Teoria e applicazioni per il project financing.

Milano: Egea

Borgonovi, E., (1996). Principi e sistemi aziendali per le amministrazioni pubbliche. Milano: Egea

Boston, J., Martin, J., Pallot, J., Walsh, P., (1996). Public Management: the %ew Zealand Model. Oxford: Oxford

University Press

Boston, J., Pallot, J., (1997). “Linking Strategy and Performance: Developments in the New Zealand Public Sector”

in Journal of Policy Analysis and Management, Vol. 16

Braudel, F., (1982). Civilization and Capitalism 15th

-18th

Century: The Perspective of the World, Vol. III. Berkeley:

University of California Press

Brealey, R. A., Myers, S. C., (1999). Principle of Corporate Finance. New York: McGraw-Hill

Brealey, R. A., Myers, S. C., Sandri, S., (2003). Capital Budgeting. Milano: McGraw-Hill

Buchanan, J. M., (1965). “An Economic Theory of Clubs” in Economica, No. 32

Buchanan, J., Tullock, G., (1962). The Calculus of Consent: Logical Foundations of Constitutional Democracy.

Ann Arbor: University of Michigan Press

Cairncross, F., (1997). The Death of Distance. Londra: Orion

Carnevale, R., (1999). “Il finanziamento degli investimenti: specificità, rischi e garanzie” in Banche e banchieri, No.

4

Cassese, S., (2002). La crisi dello Stato, Bari: Laterza

Cassese, S., (2004). La nuova costituzione economica, Bari: Laterza

Cavallini Cadeddu, L., (2004). “La contabilità degli enti territoriali e istituzionali” in Cavallini Cadeddu, L., Gallo,

C. E., Giusti, M., Ladu, G., Lupò Avagliano, M. V., (edited by), Contabilità di Stato e degli enti pubblici.

Torino: Giappichelli

Cavallini Cadeddu, L., (2005). La gestione delle autonomie tra rinnovamento e stabilità. Cagliari: Edizioni AV

Chan, Y., L., (2004). “Use of Capital Budgeting Techniques and an Analytic Hierarchy Approach to Capital

Investment Decisions in Canadian Municipal Governments” in Public Budgeting and Finance, Vol. 24, No. 2

Commission of the European Communities, (2001). La Governance Europea. Un Libro Bianco. Bruxelles

Davis, E., (1998). Public Spending. London: Penguin

De Cecco, M., Toniolo, G., (2000). Storia della Cassa Depositi e Prestiti. Roma: Laterza

De Grazia, S., (2002). “L’autonomia finanziaria degli enti territoriali nel nuovo titolo V della Costituzione” in Le

istituzioni del federalismo, No. 2

Del Monte, A., (1996). “Infrastrutture e sviluppo del Mezzogiorno” in Costabile L., (edited by), Istituzioni e

sviluppo economico del Mezzogiorno. Bologna: Il Mulino

Della Cananea, (2001). “Il Patto di stabilità e le finanze pubbliche nazionali” in Rivista di diritto finanziario e

scienza delle finanze, Vol. 4

Della Cananea, G., (2002). “Autonomie e responsabilità nell’art. 119 della Costituzione” in Giornale di diritto

amministrativo, Vol. 67

Della Cananea, G., (2003). L’Unione europea. Un ordinamento composito. Bari: Laterza

Edwards, W. (1954). “The Theory of Decision-Making” in Psychological Bulletin, Vol. 51, No. 4, July

European Commission, (2006). European Competitiveness Report 2006,

http://ec.europa.eu/enterprise/enterprise_policy/competitiveness/index_en.htm

Falcone, G., (2000). “Il finanziamento delle infrastrutture pubbliche: dal fondo perduto al credito di investimento” in

Mondo Bancario, No. 1

Falini, A., (2000). La strategia economico-finanziaria degli enti locali: prestiti obbligazionari e finanza di progetto.

Milano: Guerini

Ferlie, E., Lawrence, E. L., Pollitt, C., (2005). The Oxford Handbook of Public Management. Oxford: Oxford

University Press

Friedman, J., (1986). “The World City Hypothesis” in Development and Change, Vol. 17, No. 1

Fukayama, F., (2004). State Building Governance and World Order in the Twenty-first Century. London: Profile

Books

Giarda, P., (2001). “Le regole del federalismo fiscale nell’art. 119: un economista di fronte alla nuova costituzione”

in Le Regioni, No. 6

Giddens, A., (2000). Runaway World: How Globalization is Reshaping our Lives. London: Routledge

Giplin, R., (2000). The Challenges of Global Capitalism. Princeton NJ: Princeton University Press

Gore, A., (1993). From Red Tape to Results: Creating a Government That Works Better and Costs Less.

Washington D.C.: Government Printing Office

Greco, L., Iacovoni, D., (2002). Decentramento della finanza pubblica e finanziamento degli investimenti pubblici.

Proposte per un mercato del debito pubblico locale, Working Paper, University of Pavia, October 4th - 5

th

Greider, W., (1997). One World Ready or %ot. New York: Simon & Schuster

Held, D., (1999). Global Transformations. Stanford CA: Stanford University Press

30

Hill, M., Hupe, P. P., (2002). Implementing Public Policy: Governance in Theory and in Practice. London: Sage

Publications

Hirschman, A. O., (1970). Exit, Voice, and Loyalty. Responses to Decline in Firms, Organizations, and States.

Cambridge: Harvard University Press

Institute for Management Development, (2007). IMD World Competitiveness Yearbook 2007. Lausanne

Istituto Nazionale per il Commercio Estero, (2005). La posizione competitiva dell’Italia nell’economia

internazionale. Roma

James, C., (1998). The State Ten Years on from the Reform. Wellington: State Services Commission

Kaplan, M., Schwartz, S., (1977). “Human Judgment and Decision Processes in Applied Settings” in Academic

Press Series in Cognition and Perception. New York, London: Academic Press, Inc.

Keating, M., (1998). Public Management Reform and Social Development. Paris: OECD

Kingdon, J., (1984). Agenda, Alternatives, and Public Policies. Boston: Little, Brown

Ladu, G., (edited by) (2005). Percorsi del federalismo in Italia e non solo. Roma: Edizioni Scuola Superiore della

Pubblica Amministrazione

Le Grand, J., (2003). Motivation, Agency and Public Policy. Oxford: Oxford University Press

Leonardi, R., (1998). Convergence cohesion and integration in the European Union. London: Mc Millan

Majone, G., (1994). “The Rise of the Regulatory State in Europe” in West European Politics, Vol. 17, No. 4

Meloni, G., (2002). Le autonomie territoriali tra riforme legislative e riforme costituzionali, Progetto Ripam,

February. Roma: Formez

Meneguzzo, M., (2003). Manuale di finanza innovative per le amministrazioni pubbliche. Roma: Rubettino

Meola, A., Antonelli, R., (2004). Strategia finanziaria e finanza innovativa nell'ente locale. Rimini: Maggioli

Merusi, F., Passaro, M., (2000). Le autorità indipendenti. Bologna: Il Mulino

Moe, T., (1984). “The New Economics of Organizations” in American Journal of Political Science, Vol. 28

Moore, M. H., (1995). Creating Public Value. Cambridge: Harvard University Press

Morris, M. H., Jones, F. F., (1999). “Entrepreneurship in Established Organizations: The Case of the Public Sector”

in Entrepreneurship Theory & Practice, Vol. 24, No.1

Nichols, A., (1964). “The Opportunity Costs of Public Investment: Comment”, in The Quarterly Journal of

Economics, Vol. 78, No. 3, August

Niskanen, W., (1971). Bureaucracy and Representative Government. Chicago: Aldine Atherton

Nugent, N., (1999). Governo e politiche dell’Unione Europea. Bologna: Il Mulino

Oates W. E., (1972). Fiscal Federalism. New York: Harcourt Brace Jovanovich

Olson, M., (1965). The Logic of Collective Action. Cambridge: Harvard University Press

Olson, O., Guthrie, J., Humphrey, C., (1998). Global Warning. Debating international Developments in %ew Public

Financial Management. Oslo: Cappelen Akademisk Forlag

Organization for Economic Cooperation and Development (OECD), (1997). Managing Across Levels of

Government. Paris

Pallot, J., (1999). Central State Government Reforms: Report on %ew Zealand. Berlin: Central State Government

Reforms Projects

Parmentola, N., (2004). Investimenti pubblici e processo decisionale. Roma: Centro di Formazione Studi Formez

Passacantando, F., (1999). “Finanziamento delle opere infrastrutturali: ruolo e orientamento della Banca Mondiale”

in Rassegna Economica, No. 2

Perez, R., (2003). “La finanza pubblica” in Cassese, S., (edited by), Trattato di diritto amministrativo. Milano:

Giuffrè

Petrovich, G., (1996). Politiche di accentramento e decentramento istituzionale nelle scelte economiche collettive.

Padova: Cedam

Pezzani, F. (2001). “Il ruolo dell’accountability nella società civile” in Azienda Pubblica, No. 4 July- August

Pierre, J., (2000). Debating Governance. Oxford: Oxford University Press

Pignatti, O. (2001). Le politiche di gestione della liquidità e i nuovi strumenti finanziari degli Enti locali. Rimini:

Maggioli

Pignatti, O., (2001). Le politiche di gestione della liquidità e i nuovi strumenti finanziari degli enti locali. Rimini:

Maggioli

Pollitt, C., Bouckaert, G., (2004). Public Management Reform: A Comparative Analysis. Oxford: Oxford University

Press

Presidenza del Consiglio dei Ministri, (2005). Analisi e prospettive del federalismo fiscale. Roma: Istituto

Poligrafico e Zecca dello Stato S.p.A.

Regione Emilia Romagna – Servizio Viabilità (2004). Progettazione e sperimentazione di un modello di selezione

dei progetti a supporto del programma triennale di intervento sulla rete viaria di interesse regionale della

Regione Emilia – Romagna, Bologna: Mimeo

Rhodes, R. A. W., (1997). Understanding Governance. Milton Keynes: Open University Press

Robertson, R., (1992). Globalization. London: Sage

31

Romagnoli, G. C., (1988). %uove politiche di finanziamento degli enti locali in Italia. Confronti con l’esperienza

nord-americana. Milano: Franco Angeli

Rosa, F., (2002). Parlamento e nuovo Titolo V della Costituzione: Alcuni interrogativi sull’assetto del procedimento

legislativo dopo la recente riforma. Mimeo, www.unisi.it/ricerca/dir_eco/COMPARATO/rosa.doc

Rostirolla, P., (1988). Scelte pubbliche. Approcci interattivi multi-criterio di aiuto alla decisione. Napoli: Liguori

Rostirolla, P., (1992). Ottimo economico: processi di valutazione e di decisione. Napoli: Liguori

Rostirolla, P., (1998). La fattibilità economico-finanziaria. Napoli: Liguori

Saaty, T. L., (1980). The Analytic Hierarchy Process: Planning, Priority Setting, Resource Allocation, New York:

McGraw-Hill

Saaty, T. L., (2005). Theory and Applications of the Analytic %etwork Process. Decision Making with Benefits,

Opportunities, Costs, and Risks, Pittsburgh: RWS Publications

Saaty, T.L. (2007). “Multi-decisions decision-making: In addition to wheeling and dealing, our national political

bodies need a formal approach for prioritization” in Mathematical and Computer Modelling, Vol. 46

Saaty, T. L., Peniwati, K., (2008). Group Decision-Making: Drawing Out and Reconciling Differences. Pittsburgh:

RWS Publications

Salvemini, M. T., (2003). Il credito agli enti locali in Italia e in Europa. Cassa Depositi e Prestiti, banche pubbliche

e private, mercato finanziario. Roma: Bancaria

Salvemini, M.T., (2002). Il credito agli enti locali in Italia e in Europa. Roma: Bancaria

Samuelson, P., (1954). “The Pure Theory of Public Expenditures” in The Review of Economics and Statistics,

November

Samuelson, P., (1955). “Diagrammatic Exposition of a Theory of Public Expenditures” in The Review of Economics

and Statistics, November

Schick, A., (1996). The Spirit of Reform: Managing the %ew Zealand State Sector in a Time of Change. Wellington:

New Zealand State Services Commission

Schneider, M., Teske, P., (1992). “Toward A Theory of the Political Entrepreneur: Evidence from Local

Government” in The American Political Science Review, Vol. 86, No. 3

Schwartz, E., (1970). “The Cost of Capital and Investment Criteria in the Public Sector” in The Journal of Finance,

Vol. 25, No. 1, March

Scott, G., Ball, I., Dal, T., (1997). “New Zealand’s Public Management Reform”, in Journal of Policy Analysis and

Management, Vol. 16

Seguiti, M. L., (2003). “Le grandi riforme di bilancio tra politica ed economia. Il contesto internazionale, il ruolo

dello Stato e la pubblica amministrazione”, Working Papers, No. 3 – 4. Cassino: University of Cassino

Sherwood, C. F., Bradley S. P., (1979b). “Capital Rationing and Discounting in Public Sector Investment Decision”

in Omega, Vol. 7, No. 1

Simon, H. A., (1959). “Theories of Decision-Making in Economics and Behavioral Science” in The American

Economic Review, Vol. 49, No. 3, June

Steiss, A. W., Nwagwu, E. O., (2001). Financial Planning and Management in Public Organizations. New York:

Marcel Dekker, Inc.

Tanzi, V., Schuknecht, L., (2000). Public Spending in the 20th

Century: A Global Perspective. Cambridge:

Cambridge University Press

Tiebout, C. M., (1956). “A Pure Theory of Local Expenditures” in Journal of Political Economy, Vol. 64, No. 5

Tullock, G., (1965). The Politics of Bureaucracy. Washington: Public Affairs Press

Usai, S., (2007). “La legge finanziaria 2007, il nuovo patto di stabilità e la necessità di una modifica legislativa” in

La Finanza Locale, No. 4, April

Wildawsky, A., (1984). The Politics of Budgetary Process. Boston: Little Brown

Wolf, M., (2004). Why Globalization Works. New Haven: Yale University Press

World Bank, (2000). Assessing Globalization. World Bank Briefing Papers, Washington D.C.: World Bank

World Bank, (2002). Globalization, Growth and Poverty: Building an Inclusive World Economy. Oxford: Oxford

University Press