Soft Budget Constraints in Health Care: Evidence from Italy

The reforms that have reshaped the public health care systems have often been coupled with devolution. However, this process has frequently been accompanied by widespread soft budget constraint policies. In this paper we argue that the soft budget constraint arises from a cooperative game between local authorities that force Central Government to bail them out. Our theoretical model is tested using data for Italian regions for the period 2002–2006 and our hypothesis is verified. Although the model uses Italy as a benchmark, we believe that the framework we propose could be extended to other federal contexts where resources are distributed unevenly and preferences are asymmetric.