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

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  • Alessandro PIERGALLINI

    ()
    (Universita' di Roma Tor Vergata)

  • Michele POSTIGLIOLA

    ()
    (Universita' di Roma Tor Vergata)

Abstract

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 utstanding 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.

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Bibliographic Info

Article provided by SIE - Societa' Italiana degli Economisti (I) in its journal Rivista Italiana degli Economisti.

Volume (Year): 17 (2012)
Issue (Month): 3 (December)
Pages: 417-440

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Handle: RePEc:rie:review:v:17:y:2012:i:3:n:5

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Keywords: Fiscal Policy; Fiscal Sustainability; Public Debt;

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Cited by:
  1. Guido Baldi & Karsten Staehr, 2013. "The European debt crisis and fiscal reaction functions in Europe 2000–2012," Bank of Estonia Working Papers, Bank of Estonia wp2013-5, Bank of Estonia, revised 24 Jul 2013.
  2. Piergallini, Alessandro & Postigliola, Michele, 2013. "Non-linear budgetary policies: Evidence from 150 years of Italian public finance," Economics Letters, Elsevier, Elsevier, vol. 121(3), pages 495-498.

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