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Debt. Mezzogiorno and Development. A Trivial Exercise

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  • F. Pica
  • S. Villani

Abstract

This paper deals with two main issues: debt sustainability, meant as specificallyproposed in this paper, and the effects of debt decumulation for variousterritorial communities, in particular for the weak areas of Italy (the Mezzogiorno).The sustainability refers to the effects of governmental financial situation onthe growth rate of available resources devoted to consumption and investment.The proposed exercise aims at showing some possible outcomes of the economicand financial crisis that is taking place. Actually, the hypotheses suggesteddo not lead to a prevision, but to a prediction, that is a sort of prophecy deducedfrom a very limited set of data. Four hypotheses, concerning constraintsof various kinds regulating the variation over time of the debt amount, are proposed:firstly, the zero debt (or constant debt) hypothesis; secondly, the case ofGDP-debt ratio invariance; thirdly, the hypothesis of a ceiling on public debtand, lastly, the case of a programmed path of public debt reduction, such as thefiscal compact.The above-mentioned exercise consists in calculating, using data collected in2011, the rate of change in income of the areas considered (the Country as awhole, the Southern Italy, excluding the islands) for the years from 2013 to 2015.In the best case proposed (that is the zero debt hypothesis), the results prefigurea prognosis of stagnation in the economy of our Country, which is more seriousfor the businesses and the families of the Mezzogiorno than in the rest of Italy.The other three cases, instead, prefigure a situation of decline, which is moreserious for the last proposed scenario, i.e. in the case of a programmed path ofdebt decumulation.In the Authors' view, it has to be considered that, in Europe, the situationof the Italian Republic is similar to that of a local government. Therefore, whena debt is assumed, a path of debt repayment, which should be financed on thecurrent budget, should be defined in the coming years.

Suggested Citation

  • F. Pica & S. Villani, 2012. "Debt. Mezzogiorno and Development. A Trivial Exercise," Rivista economica del Mezzogiorno, Società editrice il Mulino, issue 3, pages 295-332.
  • Handle: RePEc:mul:jqyfkm:doi:10.1432/38967:y:2012:i:3:p:295-332
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