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Profit Share and Returns on Capital Stock in Italy: the Role of Privatisations behind the Rise of the 1990s

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  • Roberto Torrini

Abstract

Profit share in Italy has been growing between the mid-1970s and the mid-1990s, remaining stable at historically high levels since than. After dropping in the first half of the 1070s, owing to an unprecedented rapid rise in wages, profit share started to recover. The rise during the 1980s involved the entire business sector and was part of this recovery process. During the 1990s profit share continued to grow on average, but with large cross-sector differences. Profit share in manufacturing, which is more exposed to international competition, declined, together with the returns on capital stock, but increased in the rest of the business sector. We show that the better performance of the non-manufacturing business sector is mainly due to the industries most affected by the large-scale privatisations and restructuring of State-owned companies that began in the first half of the 1990s. They led to a rapid growth in total factor productivity and a deceleration in wages, without a major impact on the market power of privatised companies, even those previously in the position of incumbent monopolists. Our evidence for Italy thus strongly supports the hypothesis that profit share growth during the 1990s, which was also observed in other countries, was mainly due to a redistribution of rents rather than to biased technological change.

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Paper provided by Centre for Economic Performance, LSE in its series CEP Discussion Papers with number dp0671.

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Date of creation: Jan 2005
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Handle: RePEc:cep:cepdps:dp0671

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Web page: http://cep.lse.ac.uk/_new/publications/series.asp?prog=CEP

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Keywords: factor shares; returns on capital; privatisations;

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Cited by:
  1. Maurin, Laurent & Roma, Moreno & Vetlov, Igor, 2011. "Profit dynamics across the largest euro area countries and sectors," Working Paper Series 1410, European Central Bank.
  2. Jo Blanden & Stephen Machin & John Van Reenen, 2005. "New Survey Evidence on Recent Changes in UK Union Recognition," CEP Discussion Papers dp0685, Centre for Economic Performance, LSE.
  3. repec:old:wpaper:338 is not listed on IDEAS
  4. Hernando Zuleta & Andrew T. Young, 2010. "Labor’s Shares in a Model of Induced Innovation," Working Papers 10-01, Department of Economics, West Virginia University.
  5. Ghazala Azmat & Alan Manning & John Van Reenen, 2007. "Privatization, entry regulation and the decline of labor's share of GDP: a cross-country analysis of the network industries," LSE Research Online Documents on Economics 4552, London School of Economics and Political Science, LSE Library.
  6. Christoph Böhringer & Victoria Alexeeva-Talebi, 2011. "Unilateral climate policy and competitiveness: The implications of differential emission pricing," Working Papers V-338-11, University of Oldenburg, Department of Economics, revised Jun 2011.
  7. Domenica Tropeano, 2011. "Income distribution, growth and financialization: the Italian case," Working Papers 65-2011, Macerata University, Department of Finance and Economic Sciences, revised Apr 2011.

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