We provide a theoretical and empirical assessment of why local fiscal autonomy can affect the skills of elected officials in sub-national governments. We first develop a model of politics with different types of politicians and show that -- following a tax decentralization reform increasing local fiscal autonomy -- politicians with high administrative skills are elected in rich jurisdictions while politicians with high political skills are elected in poor ones. As a result, voter welfare increases only, or mainly, in rich jurisdictions. We then look for empirical support to these predictions by exploiting the decentralization reforms affecting Italian municipalities in the '90s. These reforms introduced both the direct election of the mayor and new autonomous tax tools for municipalities characterized by large differences in their tax bases. Our estimates -- robust to several alternative stories -- emphasize a differential change in elected officials at the municipal level between rich and poor jurisdictions. These findings provide a new explanation for the observed poor performance of local governments largely financed by grants.

Recently several countries have experienced a drop in popularity of national political parties, accompanied by the success of independent movements (e.g. “Civic Lists” in Italy). I exploit the success of “Civic Lists” in Italian municipalities and use them as a comparison group for party-affiliated politicians, to test whether national parties affect fiscal discipline. Using a Regression Discontinuity Design (RDD), I show that party-affiliated mayors are more fiscally responsible: they run lower deficits, accumulate less debt and reduce expenditures. The effect is significant only for municipalities not constrained by fiscal rules. This suggests that national parties act as a substitute for fiscal rules in constraining politicians. Besides, I provide evidence that the discipline of party-affiliated politicians is linked to better career prospects: party-affiliated mayors have a higher probability of being re-elected and better chances of being promoted to higher levels of government. Alternative stories find less support in the data.

Why do anti-immigrant political parties have more success in areas that host fewer immigrants? Using regression discontinuity design, structural breaks search methods and data from a sample of Italian municipalities, we show that the relationship between the vote shares of anti-immigrant parties and the share of immigrants follows a U-shaped curve, which exhibits a tipping-like behavior around a share of immigrants equal to 3.35 %. We estimate that the vote share of the main Italian anti-immigrant party (Lega Nord) is approximately 6 % points higher for municipalities below the threshold. Using data on local labor market characteristics and on the incomes of natives and immigrants, we provide evidence which points at the competition in the local labor market between natives and immigrants as the more plausible explanation for the electoral success of anti-immigrant parties in areas with low shares of immigrants. Alternative stories find less support in the data.

Despite the wide adoption, there is little evidence on the consequences of fiscal rules for the quality of government. I use data from Italian municipalities to study how fiscal rules affect the selection of politicians. In 1999, the Italian government applied fiscal rules to all municipalities. In 2001, it removed them for municipalities with less than 5000 inhabitants. Using a Difference-in-Discontinuity design, which enables control for an institutionally mandated increase in the wage paid to politicians at the 5000 threshold, I show that fiscal rules negatively affect the level of education of politicians. The result highlights a trade-off to fiscal rules. Reducing policymaking discretion may alleviate inter-jurisdictional externalities, but it may also lower the quality of the political class.

Do electoral incentives affect immigration policies? I study this question in the setting of Italian municipalities making decisions about the reception of refugees. The localized control of the reception policy, combined with the exogenous timing of policy decisions and staggered elections, enables me to study the effect of electoral incentives on the reception of refugees. Although municipalities receive fiscal grants for hosting refugees, I find that the probability of opening a reception centre is 24 per cent lower for municipalities in the final year of the electoral term (i.e. just before new elections), compared to municipalities in other years of the term. The results suggest that electoral incentives may induce politicians to make decisions that are potentially detrimental from an economic perspective.

Does refugee reception lead to more hate crimes against foreigners? What is the impact of refugee reception on extreme-right voting and which role does the media and specifically internet play in the transmission? Using data on Italian SPRAR refugee centres we show that the reception of refugees across Italian municipalities leads to a decrease in extreme-right voting and hate crimes against foreigners. Using an instrumental variables approach, we find that doubling the number of refugees hosted reduces the growth rate in the vote shares for the extreme-right parties by 9 per cent (about 1.6 p.p). We also find that increasing by 1 per cent the number of refugees hosted leads to a reduction of about 19 per cent in the change in hates crime over the period between 2013 and 2017. The effect on extreme voting is mainly driven by municipalities which have less internet access, hence have presumably more access to traditional vs. digital media.