Public provision vs. outsourcing of cultural services: Evidence from Italian cities

•First investigation of the determinants of outsourcing in cultural policy•We intersect the literature on the drivers of outsourcing and cultural economics.•We use dynamic panel data analysis and consider Italian cities in 1998–2008.•Fiscal stress (asset specificity) is a positive (negative) driver of outsourcing.•Strong link to political economy, as an additional driver is the timing of election. Cultural policy often implies the transfer of public resources to cultural institutions. In this contribution we focus on the determinants of a government's choice between subsidies to external cultural organizations and in-house cultural production. We argue that the determinants of grants in the cultural field may be the same as those of outsourced services, and we make reference to the empirical literature on the drivers of public services outsourcing. We consider Italian cities' cultural policies in the 1998–2008 period, a time when overall cultural expenditure shrank while cultural transfers increased. Using dynamic panel data analysis and controlling for specific economic, fiscal, and political characteristics of each city, we find that transfers to cultural organizations are negatively affected by asset specificity and more likely to occur in cities subject to fiscal stress. The results also highlight that the timing of elections plays a role.