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The Origins of the Sovereign Debt of Italy: a Common Pool Issue?

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  • L. Mauro
  • C. Buiatti
  • G. Carmeci

Abstract

Italy has the third largest public debt of the World in absolute terms and the eighth when it is GDP weighted. In addition, Italy presents the largest and most persistent development gap among its regional economies in the group of the advanced countries. Is there a link between these two facts? We present evidence in favor of a relationship between these two empirical facts by reconstructing the entire dynamics of national public deficit as a weighted sum of four macro regional deficits (Northeast, Northwest, Centre and South) . We show that the ultimate cause of the accumulation of public debt in Italy lies in the extraordinary fiscal imbalance of the Southern regions. We then focus on the determinants of the regional public deficits and their persistence. Thanks to the reconstruction of the regional deficit time series we are able to test empirically many of the several theoretical approaches suggested in the literature, including the geographically dispersed interest approach not yet considered for the Italian case. This approach turns out to be one of the best candidates to account for the size and persistence of Southern regional deficits. The whole evidence suggests the existence of a pork barrel mechanism coupled with a complex geo-political equilibrium that has allowed the Southern regions of Italy to generate deficits so large and persistent that they hoard the entire Italian National debt.

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Bibliographic Info

Paper provided by Centre for North South Economic Research, University of Cagliari and Sassari, Sardinia in its series Working Paper CRENoS with number 201212.

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Date of creation: 2012
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Handle: RePEc:cns:cnscwp:201212

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Keywords: italian public deficit; italian public debt; common pool;

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References

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  1. Francesco Pigliaru & Luciano Mauro, 2011. "Social Capital, Institutions and Growth: Further Lessons from the Italian Regional Divide," ERSA conference papers ersa11p1866, European Regional Science Association.
  2. Vittorio Daniele & Paolo Malanima, 2007. "Il prodotto delle regioni e il divario Nord-Sud in Italia (1861-2004)," Rivista di Politica Economica, SIPI Spa, vol. 97(2), pages 267-316, March-Apr.
  3. Galli, Emma & Padovano, Fabio, 2002. " A Comparative Test of Alternative Theories of the Determinants of Italian Public Deficits (1950-1998)," Public Choice, Springer, vol. 113(1-2), pages 37-58, October.
  4. Lee, Junsoo & Strazicich, Mark C, 2001. " Break Point Estimation and Spurious Rejections with Endogenous Unit Root Tests," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 63(5), pages 535-58, December.
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