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Due to the economic crisis, the macroeconomic performance of Italy was very poor during 2007-2014. This caused an increase in public expenditure and debt, both at the central and local levels (Table 1). The poor economic performance and the European fiscal constraints contributed to the reduction of the resources that the central state transfers to local administrations. Regardless of the economic crisis, during the period under consideration, regions increased taxes to fund the (increasing) expenditures, especially in the healthcare system. The total debt of regions doubled between 2007 and 2014, and Ordinary Statute Regions (OSRs) extensively employed Over-the-Counter (OTC) swaps to manage their (increasing) liabilities. According to the Bank of Italy (2016) the negative market value
of OTC contracts from 2007 to 2014 registered a significant increase, from € 803 mn to € 1,328 mn. Over the same period, the notional amount of OTC contracts dropped (only) from 15 bn to 12 bn. In this negative economic context, the present paper, based on the available accounting data, investigates whether OTC derivatives underwritten by regions have been used to hedge their (increasing) debts or to counter-balance the reduced resources from the central government.
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