Evaluating the sustainability of Italian public finances (original) (raw)

The sustainability of Italian fiscal policy: myth or reality?

Economic Research-Ekonomska Istraživanja

In this paper, we analyse the sustainability of Italian public finances using a unique database covering the period 1862-2013. This paper focuses on empirical tests for the sustainability and solvency of fiscal policies. A necessary but not sufficient condition implies that the growth rate of public debt should at the limit be smaller than the asymptotic rate of interest. In addition, the debt-to-G.D.P. ratio must eventually stabilise at a steady-state level. The results of unit root and stationarity tests show that the variables are non-stationary at levels, but stationary in first-differences form, or I(1). Some breaks in the series emerge, however, given internal and external crises (wars, oil shocks, regime changes, institutional reforms). Therefore, the empirical analysis is conducted for the entire period, as well as two sub-periods (1862-1913 and 1947-2013). Moreover, anecdotal evidence and visual inspection of the series confirm our results. Furthermore, we conduct tests on cointegration, which evidence that a long-run relationship between public expenditure and revenues is found only for the first sub-period (1862-1913). In essence, the paper's results reveal that Italy had sustainability problems in the Republican age.

Fiscal Policy and Public Debt Dynamics in Italy, 1861-2009

SSRN Electronic Journal, 2012

We examine the historical dynamics of government debt in Post-Unification Italy, from 1861 to 2009. Unit root tests for the debt-GDP ratio are unable to reject either the non-stationarity or the stationarity null hypothesis. Controlling debt dynamics for fiscal feedback policies of the Barro-Bohn style, however, the debt-GDP ratio is found to be mean-reverting. Mean-reversion in the debt-GDP ratio is due not only to a nominal growth dividend, but also to a positive response of primary surpluses to variations in outstanding debt. There is indeed significant evidence that, over the history of Italy, fiscal policy makers have reacted to the accumulation of debt, taking corrective measures to rule out potential long-term sustainability problems.

The sustainability of Italian fiscal policy: myth or reality? The sustainability of Italian fiscal policy: myth or reality

Economic Research-Ekonomska Istraživanja, 2019

In this paper, we analyse the sustainability of Italian public finances using a unique database covering the period 1862-2013. This paper focuses on empirical tests for the sustainability and solvency of fiscal policies. A necessary but not sufficient condition implies that the growth rate of public debt should at the limit be smaller than the asymptotic rate of interest. In addition, the debt-to-G.D.P. ratio must eventually stabilise at a steady-state level. The results of unit root and stationarity tests show that the variables are non-stationary at levels, but stationary in first-differences form, or I(1). Some breaks in the series emerge, however, given internal and external crises (wars, oil shocks, regime changes, institutional reforms). Therefore, the empirical analysis is conducted for the entire period, as well as two sub-periods (1862-1913 and 1947-2013). Moreover, anecdotal evidence and visual inspection of the series confirm our results. Furthermore, we conduct tests on cointegration, which evidence that a long-run relationship between public expenditure and revenues is found only for the first sub-period (1862-1913). In essence, the paper's results reveal that Italy had sustainability problems in the Republican age. ARTICLE HISTORY

The Sustainability of Italian Public Debt and Deficit

In this paper, we analyse the sustainability of Italian public debt using a unique database, reconstructedbyForte (2011),whichcoverstheyears1862–2013.Thestudy focuses on empirical tests for the sustainability and solvency of Italian public finance. The results of unit root and stationarity tests show that public debt and deficit variables are non-stationary at levels, but stationary in first-differences form, or I(1). However, some breaks in the series emerge, given internal and external crises (wars, oil shocks, regime changes, institutional reforms). Therefore, the empirical analysis is conducted for the entire period, as well as two sub-periods (1862–1913 and 1947–2013). In essence, the paper’s results reveal that Italy has sustainability problems in the Republican age (1947-2013). Our Markov-switching dynamic regression modelindicatesthe existence of two distinct states, both for public debt and deficit, with means and standard deviations rather different. Both states are extremely persistent.

Sustainability of Italian budgetary policies: a time series analysis (1862-2013)

European Journal of Government and Economics

In this paper, we analyze the sustainability of Italian public finances using a unique database covering the period 1862-2013. This paper focuses on empirical tests for the sustainability and solvency of fiscal policies. A necessary but not sufficient condition implies that the growth rate of public debt should in the limit be smaller than the asymptotic rate of interest. In addition, the debt-to-GDP ratio must eventually stabilize at a steady-state level. The results of unit root and stationarity tests show that the variables are non-stationary at levels, but stationary in first-differences form, or I(1). However, some breaks in the series emerge, given internal and external crises (wars, oil shocks, regime changes, institutional reforms). Therefore, the empirical analysis is conducted for the entire period, as well as two sub‐periods (1862‐1913 and 1947‐2013). Moreover, anecdotal evidence and visual inspection of the series confirm our results. Furthermore, we conduct tests on coi...

Non-linear budgetary policies: Evidence from 150 years of Italian public finance

Economics Letters, 2013

We investigate the sustainability of Italy's public …nances from 1862 to 2012 adopting a non-linear perspective. Speci…cally, we employ the smooth transition regression approach to explore the scope for non-linear …scal adjustments of primary surpluses in response to the accumulation of debt. The empirical results show the occurrence of a signi…cantly positive reaction of primary surpluses to debt when the debt-GDP ratio exceeded the trigger value of 110 percent. The afterthreshold positive response implies that the path of Italy's …scal policy is su¢ciently consistent with the intertemporal budget constraint.

Fiscal Policy and Public Debt Dynamics in Italy

2011

We examine the historical dynamics of government debt in Post-Unification Italy, from 1861 to 2009. Unit root tests for the debt-GDP ratio are unable to reject either the non stationarity or the stationarity null hypothesis. Controlling debt dynamics for fiscal feedback policies of the Barro-Bohn style, however, the debt-GDP ratio is found to be mean-reverting. Mean-reversion in the debt-GDP ratio is due not only to a nominal growth dividend, but also to a positive response of primary surpluses to variations in outstanding debt. There is indeed significant evidence that, over the history of Italy, fiscal policy makers have reacted to the accumulation of debt, taking corrective measures to rule out potential long-term sustainability problems.

The Sustainability of Fiscal Policy in Italy: A Long-Term Perspective

2012

The recent fears of a sovereign debt crisis have spurred interest in the sustainability of public debt. There are two different approaches to the assessment of sustainability: the use of sustainability gap indicators (Blanchard et al., 1990) and the time series approach (Trehan and Walsh, 1988). In this paper we analyze the sustainability of public debt in Italy following the

A (Un)Pleasant Arithmetic of Fiscal Policy: the Case of Italian Public Debt

2008

Using the simple arithmetic of government budget constraint, we perform an analysis on the Italian case, investigating the consequences on the main public finance aggregates of the adoption of a fiscal policy rule responding to past real debt/GDP ratio. Such a rule, firmly grounded in the economic analysis, would allow the reduction of Italy's outstanding stock of debt without requiring the strict adherence to the 3% criterion for deficit/GDP ratio, as prescribed by SGP. We perform a forecasting exercise under five alternative scenarios, analyze the details of a structural debt reduction strategy with alternative yearly step, and finally carry out a counterfactual exercise by applying our proposed rule to the period 1994-2006.