Are Italy’s Public Finances Sustainable? The Role of Demographics, Productivity, and Labour Markets

Government of the Italian Republic (Italy), Ministry of Economy and Finance, Department of the Treasury Working Paper No. 6

32 Pages Posted: 11 Jun 2009

See all articles by Paolo Biraschi

Paolo Biraschi

Government of the Italian Republic (Italy) - Department of the Treasury

Lorenzo Codogno

London School of Economics

Federico Giammusso

Government of the Italian Republic (Italy) - Department of the Treasury

Manuela Nenna

Ministero dell'economia e delle finanze. Dipartimento del tesoro

Juan Pradelli

Consip SPA

Date Written: July 6, 2008

Abstract

In light of the uncertainty of the effects of population ageing on growth and fiscal variables, it is sensible to ask whether Italy’s public finances can achieve sustainability under the spending pressure exerted by future demographic and macroeconomic developments. The paper addresses this question by assessing long-term fiscal sustainability, following the commonlyagreed European methodology, under alternative scenarios considering a variety of issues that may have a bearing on Italy’s public finance conditions, namely, immigration, life expectancy, female labour participation, and productivity growth. Despite the different hypotheses captured by the alternative scenarios, the paper finds that projected debt-to-GDP ratios decrease over time, as long as fiscal consolidation is achieved in the near future. It also shows a one-shot debt-reduction strategy is not a credible substitute for a budgetary-adjustment strategy. The paper concludes Italy’s public finances are sustainable and can deal with future spending pressures resulting from the ageing population.

Keywords: Fiscal Sustainability, Fiscal Policy

JEL Classification: E62, H63, H55

Suggested Citation

Biraschi, Paolo and Codogno, Lorenzo and Giammusso, Federico and Nenna, Manuela and Pradelli, Juan, Are Italy’s Public Finances Sustainable? The Role of Demographics, Productivity, and Labour Markets (July 6, 2008). Government of the Italian Republic (Italy), Ministry of Economy and Finance, Department of the Treasury Working Paper No. 6, Available at SSRN: https://ssrn.com/abstract=1417377 or http://dx.doi.org/10.2139/ssrn.1417377

Paolo Biraschi (Contact Author)

Government of the Italian Republic (Italy) - Department of the Treasury ( email )

Via XX Settembre, 97
Rome, 00187
Italy

Lorenzo Codogno

London School of Economics ( email )

Houghton Street
London, WC2A 2AE
United Kingdom
+44 (0) 20 8295 2291 (Phone)

Federico Giammusso

Government of the Italian Republic (Italy) - Department of the Treasury ( email )

Via XX Settembre, 97
Rome, 00198
Italy

HOME PAGE: http://www.dt.mef.gov.it/en/

Manuela Nenna

Ministero dell'economia e delle finanze. Dipartimento del tesoro ( email )

Via XX Settembre, 97
Rome, 00187
Italy

HOME PAGE: http://www.dt.mef.gov.it/en/

Juan Pradelli

Consip SPA ( email )

Direzione Acquisti in Rete della Pubblica Amminist
Via Isonzo, 19/E
00198 Roma
Italy

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