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

26 Pages Posted: 2 Feb 2012

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: April 3, 2008

Abstract

In light of the uncertainty of the effects of population aging 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 commonly-agreed 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 labor 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 aging population.

Keywords: Fiscal Sustainability, Fiscal Policy, Debt Projection

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 Demography, Productivity and Labour Markets (April 3, 2008). Available at SSRN: https://ssrn.com/abstract=1997297 or http://dx.doi.org/10.2139/ssrn.1997297

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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