The aim of this paper is to investigate the extent to which local budget spending composition reacts to fiscal rules variations. I consider the budget of Italian municipalities and exploit specific changes in the Domestic Stability Pact's rules, to perform a difference-in-discontinuities analysis. The results show that not all rules are equally effective: imposing a cap on the total amount of consumption and investment is not as binding as two caps, one specific for consumption and a different one for investment spending. More specifically, the consumption variation is triggered by changes in the level of wages and services spending, while investment relies on infrastructure movements. In addition, there is evidence that when an increase in investment is achieved, there is also a higher budget deficit level.JEL codes: C21, C23, H72, H74, H77.

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This paper attempts to evaluate the effects of fiscal policy announcements by the Italian government on the long-term sovereign bond spread of Italy relative to Germany. After collecting data on relevant fiscal policy announcements, we perform an econometric comparative analysis between the three cabinets that followed one JEL codes: E43, E62, G01, G12