Cohesion policy and domestic fiscal expenditure in Italian regions: A sectoral ex-post assessment of the additionality principle

Abstract

The additionality principle of the European cohesion policy was verified ex-ante by the European Commission and was eliminated starting from the 2021–27 programming period. However, the cohesion treatment may have ex-post reduced, in some cases, national spending and the decision to eliminate the principle should have been taken under a case-by-case scrutiny. The application of the additional principle has been suggested for more recent anti-crisis fiscal policy programmes and some authors have claimed a reintroduction of it for cohesion policy. This paper deals with an ex-post sector-by-sector evaluation of the additionality principle in the European cohesion policy with respect to domestic fiscal policy during the two most recently concluded programming periods (2007–13 and 2014–20). The application is carried out for the Italian regions. In particular, we look at how the relationships between cohesion policy and domestic non-cohesion fiscal policy may differ for specific sectors (education, culture, transportation and environment) employing a regional panel framework and addressing the issues of endogeneity and reverse causality explicitly. We construct a unique database which combines two sources of information available for the Italian case. The first includes information on cohesion projects while the other refers to the regionalized public expenditure obtained by consolidating all different sources of spending. We found strong sectoral heterogeneity in the compliance with the additionality principle. Cohesion policy in education and environment appears to display a substitution effect. On the contrary, cohesion policy seems more additional to domestic expenditures in transportation infrastructures. The analysis found some differences in the compliance with the additionality principle also among Italian regions. Sectoral and regional heterogeneity should be taken into account in practical policymaking.