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Debito, Mezzogiorno e sviluppo. A trivial exercise
[Sovereign Debt Sustainability, Mezzogiorno and Economic Growth. A Trivial Exercise]

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  • Pica, Federico
  • Villani, Salvatore

Abstract

The analysis presented in this paper deals with two main issues: the one of debt sustainability, meant in the particular acceptation proposed in this article, and the one of the effects of debt decumulation for the various territorial communities, in particular for the weak areas of Italy (Mezzogiorno). The sustainability refers to the effects of the governmental financial situation on the growth rate of available resources for the purposes of consumption and investment. The proposed exercise aims at showing some possible outcomes of the economic and financial crisis that is taking place. Actually, the hypotheses proposed do not lead to a prevision, but to a prediction, that is a sort of prophecy deduced from a very limited set of data. Four hypotheses, concerning the constraints of various kinds regulating the variation over time of the debt amount, are proposed: firstly, the zero debt (or constant debt) hypothesis; secondly, the case of the invariance of GDP-debt ratio; thirdly, the hypothesis of a ceiling on public debt and, lastly, the case of a programmed path of public debt reduction, such as the fiscal compact. The above mentioned exercise consists in calculating, using the data collected in 2011, the rate of change in income of the areas considered (the country as a whole, the Southern Italy, excluding the islands) for the years going from 2013 to 2015. In the best case proposed (that is the zero debt hypothesis), the results prefigure a prognosis of stagnation in the economy of our country, which is more serious for the enterprises and the families of Mezzogiorno than in the rest of Italy. The other three cases, however, prefigure a situation of decline, which is more serious for the last proposed scenario, i.e. for the case of a programmed path of debt decumulation. In the Authors’ view, it takes to consider that, in Europe, the situation of the Italian Republic is similar to that one of a local government. Therefore, when a debt is assumed, a path of debt repayment in the coming years, which should be financed on the current budget, should be defined.

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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 43199.

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Date of creation: 20 Oct 2012
Date of revision: 28 Nov 2012
Publication status: Forthcoming in Rivista economica del Mezzogiorno 3.XXVI(2012): pp. -
Handle: RePEc:pra:mprapa:43199

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Keywords: Sovereign Debt Sustainability; State and Local Budget and Expenditures; Interjurisdictional Differentials and Their Effects; State and Local Borrowing;

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  1. Alberto Bagnai, 2004. "Keynesian and neoclassical fiscal susteinability indicators, with applications to EMU member countries," Working Papers 75, University of Rome La Sapienza, Department of Public Economics.
  2. Pasinetti, Luigi L, 1998. "The Myth (or Folly) of the 3 Percent Deficit/GDP Maastricht 'Parameter.'," Cambridge Journal of Economics, Oxford University Press, vol. 22(1), pages 103-16, January.
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  7. Holm-Hadulla, Fédéric & Leiner-Killinger, Nadine & Slavík, Michal, 2011. "The response of labour taxation to changes in government debt," Working Paper Series 1307, European Central Bank.
  8. Matteo Formenti, 2008. "Indicators and Tests of Sustainability: The Italian Case," Rivista di Politica Economica, SIPI Spa, vol. 98(6), pages 123-160, November-.
  9. David W. Wilcox, 1987. "The substainability of government deficits: implications of the present- value borrowing constraint," Working Paper Series / Economic Activity Section 77, Board of Governors of the Federal Reserve System (U.S.).
  10. Stephen Cecchetti & Madhusudan Mohanty & Fabrizio Zampolli, 2011. "The real effects of debt," BIS Working Papers 352, Bank for International Settlements.
  11. Luigi Spaventa, 1987. "The Growth of Public Debt: Sustainability, Fiscal Rules, and Monetary Rules," IMF Staff Papers, Palgrave Macmillan, vol. 34(2), pages 374-399, June.
  12. Henning Bohn, 1998. "The Behavior Of U.S. Public Debt And Deficits," The Quarterly Journal of Economics, MIT Press, vol. 113(3), pages 949-963, August.
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