The Impact of Performance Measurement on Financial Forecasting in Italian Municipalities

25 Pages Posted: 18 Jan 2007

See all articles by Emanuele Padovani

Emanuele Padovani

University of Bologna - Department of Management

Rosaria Maria Ferrante

University of Bologna - Department of Statistics

Date Written: November 27, 2006

Abstract

Since the mid-1990s, under the wave of New Public Management reforms around the globe, Italian local governments (LGs) have received growing pressure from the legislature to implement performance measurement systems. With reference to municipalities, data show that there has been a growing diffusion of management control systems (MCSs) and therefore some sort of performance measurement. In 1998, less than one-tenth of about 8,100 Italian municipalities indicated that they had a MCS in place. This number increased during the following four years to about 36% for municipalities with a population less than 60,000 inhabitants, and 77% for larger municipalities (source: Italian Court of Audit, 2003). Other evidence depicts similar trends: an increase in benchmarking projects during the latter half of the 1990s and 2001 (Lucianelli and Tanese, 2002), and a growing attention on cost accounting which led to half of Italian municipalities with some sort of measurement of costs in 2003 (Orelli and Visani, 2004).

The general framework of the Italian Local Governments Accounting Standards (Commission for Local Governments' Finance and Accounting - Ministry of the Interior, 2004) emphasize that the annual budget approved by each municipality's council should present the true and fair view of the next year. In other words, municipalities should plan the year after attempting to determine the best feasible picture of it in terms - above all - of revenues and expenses. Toward this end the legislature (Decree no. 267/00, articles no. 162, 196, and 197) suggests the use of performance measures, especially those connected to a MCS.

Therefore an important question is whether the growth of performance measurement had a positive impact on Italian municipalities' ability to estimate revenues and expenditures more accurately in their annual budgets. To answer this question we use a quantitative approach based on an analysis of annual budgets and annual reports of Italian municipalities covering financial years 1999-2002.

Keywords: performance measurement, municipalities, budget, forecasting accuracy

JEL Classification: H70, H72

Suggested Citation

Padovani, Emanuele and Ferrante, Rosaria Maria, The Impact of Performance Measurement on Financial Forecasting in Italian Municipalities (November 27, 2006). Available at SSRN: https://ssrn.com/abstract=957991 or http://dx.doi.org/10.2139/ssrn.957991

Emanuele Padovani (Contact Author)

University of Bologna - Department of Management ( email )

Forli' Campus
15, p.le Vittoria
Forli', FC I-47121
Italy
+39(0543)374-621 (Phone)
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HOME PAGE: http://www.unibo.it/docenti/emanuele.padovani

Rosaria Maria Ferrante

University of Bologna - Department of Statistics ( email )

Bologna, 40126
Italy

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