The Kingdom of Italy - National, Civil and State Parade Flag 1861 - 1946.
The Kingdom of Italy was forged back in 1861 under the power of the Kingdom of Sardinia that was the lawful predecessor state. The Kingdom of Sardinia originally adopted the tricolor patterned flag but it was later changed when the kingdom officially became the Kingdom of Italy with the addition of the arms of the House of Savoy.
The red, white and green tricolor of the Kingdom of Italy flag takes its origins from the red, white and green regimental flags that were issued by Italian troops when they fought with Napoleon. Back in 1848, the tricolor pattern of the flag was taken on by the Kingdom of Sardinia and by 1861, the arms of the House of Savoy was added the flag as it became the flag of the Kingdom of Italy.
During WWII, it was flown to show support to the side of the Axis and during this time, the flag served as the national, civil and state flag of Italy. With a crown above the arms, it served as the naval ensign and war flag.
Small inexpensive flags like this were commonly distributed for parades and rallies in the later stages of the fascist Kingdom of Italy. This is likely a GI Bring-back from WWII era Italy.
Sources:
Italy, Flags of the World, 29 August 2012, from: http://www.crwflags.com/fotw/flags/it.html
Flag of Italy, Wikipedia, 29 August 2012, from: http://en.wikipedia.org/wiki/Flag_of_Italy
Image Credits:
Zaricor Flag Collection