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

79 Pages Posted: 15 May 2012

See all articles by Silvana Bartoletto

Silvana Bartoletto

University of Naples Parthenope - Department of Economic Studies (DES)

Bruno Chiarini

University of Naples, Parthenope

Elisabetta Marzano

University of Naples Parthenope - Department of Economic Studies (DES)

Date Written: May 15, 2012

Abstract

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 latter approach. We examine almost the entire life of the Italian State, i.e. 1861-2010, by employing a database containing several statistical novelties: new time series estimates of public debt and GDP (respectively Banca d’Italia, 2008 and Baffigi, 2011) and an original reconstruction of the revenues of the State. The long-term analysis of new homogeneous statistical series has led to a different perspective, in particular when compared with the existing Italian literature on the debt-to-GDP ratio.

Two main issues are addressed. First, we examine the size and dynamics of public finance aggregates. In particular, we carry out a detailed historical analysis, aiming to identify, in a narrative approach, the determinants of public debt and its ratio to GDP. Second, exploiting unit root analysis and cointegration, we test for the sustainability of public debt in Italy following the approach proposed both by Trehan and Walsh (1988, 1991) and Bohn (1991).

Keywords: intertemporal budget constraint, unit roots, cointegration, fiscal sustainability, economic history

JEL Classification: C220, E620, H600, N400, N130, N140

Suggested Citation

Bartoletto, Silvana and Chiarini, Bruno and Marzano, Elisabetta, The Sustainability of Fiscal Policy in Italy: A Long-Term Perspective (May 15, 2012). CESifo Working Paper Series No. 3812. Available at SSRN: https://ssrn.com/abstract=2059964

Silvana Bartoletto

University of Naples Parthenope - Department of Economic Studies (DES) ( email )

via Medina 40
Naples, 80133
Italy

Bruno Chiarini

University of Naples, Parthenope ( email )

Via Generale Parisi 13
Napoli, 80133
Italy

Elisabetta Marzano (Contact Author)

University of Naples Parthenope - Department of Economic Studies (DES) ( email )

via Medina 40
Naples, 80133
Italy

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