The paper analyzes the impact of the introduction of a cap on capital expenditures for Italian municipalities on the actual trend of this item and on the discrepancy between the planned and actual expenditure value. The analysis is carried out on the budgets of 2005 and on the years immediately preceding and following, as it was precisely in 2005 that an amendment to the internal Stability Pact introduced - for municipalities with more than 5,000 inhabitants only - restrictions on spending dynamics.
Municipalities' capital expenditure plans suffer from excessive and systematic optimism: almost half of the planned expenditures are not carried out ex post. The introduction of a cap on capital expenditures has reduced this forecast error by about one third. The increased accuracy is almost entirely due to a reduction in planned disbursements. As a result of the reform, the forecasts of capital account receipts have also become more accurate.
