IDEAS home Printed from https://ideas.repec.org/p/bdi/workqs/qse_11.html
   My bibliography  Save this paper

Public Debt and Economic Growth in Italy

Author

Listed:
  • Fabrizio Balassone

    () (Bank of Italy)

  • Maura Francese

    () (Bank of Italy)

  • Angelo Pace

    () (Bank of Italy)

Abstract

In 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.

Suggested Citation

  • Fabrizio Balassone & Maura Francese & Angelo Pace, 2011. "Public Debt and Economic Growth in Italy," Quaderni di storia economica (Economic History Working Papers) 11, Bank of Italy, Economic Research and International Relations Area.
  • Handle: RePEc:bdi:workqs:qse_11
    as

    Download full text from publisher

    File URL: http://www.bancaditalia.it/pubblicazioni/quaderni-storia/2011-0011/QSEn_11.pdf
    Download Restriction: no

    References listed on IDEAS

    as
    1. Maura Francese & Angelo Pace, 2008. "Italian Public debt since national unification. A reconstruction of the time series," Questioni di Economia e Finanza (Occasional Papers) 31, Bank of Italy, Economic Research and International Relations Area.
    2. Krugman, Paul, 1988. "Financing vs. forgiving a debt overhang," Journal of Development Economics, Elsevier, vol. 29(3), pages 253-268, November.
    3. Checherita-Westphal, Cristina & Rother, Philipp, 2010. "The impact of high and growing government debt on economic growth: an empirical investigation for the euro area," Working Paper Series 1237, European Central Bank.
    4. B. Bhaskara Rao, 2007. "Estimating short and long-run relationships: a guide for the applied economist," Applied Economics, Taylor & Francis Journals, vol. 39(13), pages 1613-1625.
    5. Bottazzi, Laura & Peri, Giovanni, 2004. "The Dynamics of R&D and Innovation in the Short-Run and in the Long-Run," CEPR Discussion Papers 4479, C.E.P.R. Discussion Papers.
    6. N. Gregory Mankiw & David Romer & David N. Weil, 1992. "A Contribution to the Empirics of Economic Growth," The Quarterly Journal of Economics, Oxford University Press, vol. 107(2), pages 407-437.
    7. Carmen M. Reinhart & Kenneth S. Rogoff, 2010. "Growth in a Time of Debt," American Economic Review, American Economic Association, vol. 100(2), pages 573-578, May.
    8. Christophe Kamps, 2005. "The Dynamic Effects of Public Capital: VAR Evidence for 22 OECD Countries," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 12(4), pages 533-558, August.
    9. Raffaello Bronzini & Paolo Piselli, 2006. "Determinants of long-run regional productivity: the role of R&D, human capital and public infrastructure," Temi di discussione (Economic working papers) 597, Bank of Italy, Economic Research and International Relations Area.
    10. Lucas, Robert Jr., 1988. "On the mechanics of economic development," Journal of Monetary Economics, Elsevier, vol. 22(1), pages 3-42, July.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    public debt; economic growth; Italian economic history;

    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

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:bdi:workqs:qse_11. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (). General contact details of provider: http://edirc.repec.org/data/bdigvit.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.