The Law 42/09 represents an important step towards fiscal federalism in Italy. In particular, the Law places its foundation on the principles of territoriality, fiscal autonomy and fiscal equalization in order to abandon the criterion of historical expenditure in favor of «standard costs». A standard level of services must be provided by the local governments which must finance the expenditures mainly with their own tax revenues. In case the revenues are not adequate to cover the «standard» financial needs, the central government intervenes with equalization transfers. The definition of «standard criteria» therefore represents a crucial phase in the whole reforming process. The amount of central government transfers in fact depends on the flexibility of these criteria. Since the law gives very few indications on how to calculate the «standard costs/revenues», in this work we propose some alternative evaluations of these and assess the impact that different approaches can have on the central and local budgets using a CGE (Computable General Equilibrium) model based on a bi-regional SAM (Social Accounting Matrix) for Italy for 2003.
