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Accounting Reforms: Determinants of Local Governments' Choices

The introduction of accrual accounting in Italian Local Governments has been mandated in a way that permits, and in fact encourages, a merely formal compliance. Local Governments must produce accrual-based financial statements, but double-entry bookkeeping is not mandatory, nor may traditional budgetary accounting be abandoned. Why, then, should they bother to introduce an integrated system of budgetary and accrual accounting? In this paper, we empirically investigate the determinants of Local Government's choices of accounting innovation. According to our results, rational elements such as complexity, types of activities performed, presence of surpluses, and access to capital markets are seemingly unhelpful in explaining why a Local Government decides to introduce accrual accounting. What counts are institutional and cultural explanations, such as the perceptions of CFOs and the North-South divide.