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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.

Suggested Citation

  • Roberto Torrini, 2005. "Profit Share and Returns on Capital Stock in Italy: the Role of Privatisations behind the Rise of the 1990s," CEP Discussion Papers dp0671, Centre for Economic Performance, LSE.
  • Handle: RePEc:cep:cepdps:dp0671
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    Cited by:

    1. 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," CEP Discussion Papers dp0806, Centre for Economic Performance, LSE.
    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. Zuleta, Hernando & Young, Andrew T., 2013. "Labor shares in a model of induced innovation," Structural Change and Economic Dynamics, Elsevier, vol. 24(C), pages 112-122.
    4. repec:zbw:hohpro:338 is not listed on IDEAS
    5. Domenica Tropeano, 2012. "Income Distribution, Growth and Financialization: The Italian Case," Chapters,in: Employment, Growth and Development, chapter 4 Edward Elgar Publishing.
    6. George Irvin, 2011. "Forum 2011," Development and Change, International Institute of Social Studies, vol. 42(1), pages 154-182, January.
    7. Laurent Maurin & Moreno Roma & Igor Vetlov, 2011. "Profit Dynamics across the Largest Euro Area countries and Sectors," Bank of Lithuania Working Paper Series 12, Bank of Lithuania.
    8. repec:old:wpaper:338 is not listed on IDEAS
    9. 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.
    10. Monica Amici & Emmanuele Bobbio & Roberto Torrini, 2017. "Patterns of convergence (divergence) in the euro area: profitability versus cost and price indicators," Questioni di Economia e Finanza (Occasional Papers) 415, Bank of Italy, Economic Research and International Relations Area.

    More about this item

    Keywords

    factor shares; returns on capital; privatisations;

    JEL classification:

    • E25 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Aggregate Factor Income Distribution
    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • L32 - Industrial Organization - - Nonprofit Organizations and Public Enterprise - - - Public Enterprises; Public-Private Enterprises
    • L33 - Industrial Organization - - Nonprofit Organizations and Public Enterprise - - - Comparison of Public and Private Enterprise and Nonprofit Institutions; Privatization; Contracting Out
    • J30 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - General

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