Public Debt and Economic Growth in Italy
AbstractIn this paper we investigate the link between government debt-to-GDP ratio and real per capita income growth in Italy over 1861-2009. We model our regression analysis on a standard production function. Our results support the hypotheses of a negative relation between public debt and growth and of a stronger effect of foreign debt compared to domestic debt before World War I. The effect of public debt on growth appears to work mainly through reduced investment. These results help explain the different reaction of per capita GDP growth to the debt-ratio over 1880-1914 (when the negative correlation between the two variables is particularly strong) and 1985-2007 (when the correlation appears to break down when debt starts declining). A descriptive analysis of fiscal policy in these two periods suggests that differences in the timing of fiscal consolidation as well as in the size and composition of the budget are additional explanatory factors.
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Bibliographic InfoPaper provided by Bank of Italy, Economic Research and International Relations Area in its series Quaderni di storia economica (Economic History Working Papers) with number 11.
Date of creation: Oct 2011
Date of revision:
public debt; economic growth; Italian economic history;
Find related papers by JEL classification:
- H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management; Sovereign Debt
- E60 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - General
- N0 - Economic History - - General
This paper has been announced in the following NEP Reports:
- NEP-ALL-2011-12-19 (All new papers)
- NEP-FDG-2011-12-19 (Financial Development & Growth)
- NEP-HIS-2011-12-19 (Business, Economic & Financial History)
- NEP-PUB-2011-12-19 (Public Finance)
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