Evolution of the Finance Function in the Italian Local Public Bodies

Abstract

In recent times several factors like financial speculation, high amount of sovereign debt in the Euro area, political and economic problems for the smaller countries and the consequent reduction of credit ratings (for example Greece, Ireland, Portugal, Belgium, and so on) as well as the increase in spreads between borrowing rates of the different actors has brought the issue of public administration funding to the fore. More specifically public finance has been over many years the focus of research by professionals and practitioners since the Government and the local authorities have experimented with new tools for collection of financial resources, due to the changed economic and financial environment. This practice has been defined by the word “Finanza Innovativa” (Matraia and Mazzillo, 2007) and it is characterized by the following characteristics:

• it is an alternative to the traditional practice,

• it includes sophisticated financial strategies and tools, compared to the usual practice in public finance,

• it is developed specifically to gather financial resources.

The use of derivatives by local authorities is a new concept in order to fit with the new context in which the local authority operates. The purpose of such operations is to ensure solvency to the local authority within the short term without compromising its strength in the longer term.