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The Sustainability of Fiscal Policy in Italy: A Long-Term Perspective

Author

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  • Silvana Bartoletto
  • Bruno Chiarini
  • Elisabetta Marzano

Abstract

The recent fears of a sovereign debt crisis have spurred interest in the sustainability of public debt. There are two different approaches to the assessment of sustainability: the use of sustainability gap indicators (Blanchard et al., 1990) and the time series approach (Trehan and Walsh, 1988). In this paper we analyze the sustainability of public debt in Italy following the latter approach. We examine almost the entire life of the Italian State, i.e. 1861-2010, by employing a database containing several statistical novelties: new time series estimates of public debt and GDP (respectively Banca d’Italia, 2008 and Baffigi, 2011) and an original reconstruction of the revenues of the State. The long-term analysis of new homogeneous statistical series has led to a different perspective, in particular when compared with the existing Italian literature on the debt-to-GDP ratio. Two main issues are addressed. First, we examine the size and dynamics of public finance aggregates. In particular, we carry out a detailed historical analysis, aiming to identify, in a narrative approach, the determinants of public debt and its ratio to GDP. Second, exploiting unit root analysis and cointegration, we test for the sustainability of public debt in Italy following the approach proposed both by Trehan and Walsh (1988, 1991) and Bohn (1991).

Suggested Citation

  • Silvana Bartoletto & Bruno Chiarini & Elisabetta Marzano, 2012. "The Sustainability of Fiscal Policy in Italy: A Long-Term Perspective," CESifo Working Paper Series 3812, CESifo Group Munich.
  • Handle: RePEc:ces:ceswps:_3812
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    Cited by:

    1. Beniamino Moro, 2013. "The Run On Repo and the Liquidity Shortage Problems of the Current Global Financial Crisis: Europe vs. The US," Ekonomi-tek - International Economics Journal, Turkish Economic Association, vol. 2(1), pages 41-77, January.
    2. Silvana Bartoletto & Bruno Chiarini & Elisabetta Marzano, 2013. "Is the Italian Public Debt Really Unsustainable? An Historical Comparison (1861-2010)," CESifo Working Paper Series 4185, CESifo Group Munich.

    More about this item

    Keywords

    intertemporal budget constraint; unit roots; cointegration; fiscal sustainability; economic history;

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
    • H60 - Public Economics - - National Budget, Deficit, and Debt - - - General
    • N40 - Economic History - - Government, War, Law, International Relations, and Regulation - - - General, International, or Comparative
    • N13 - Economic History - - Macroeconomics and Monetary Economics; Industrial Structure; Growth; Fluctuations - - - Europe: Pre-1913
    • N14 - Economic History - - Macroeconomics and Monetary Economics; Industrial Structure; Growth; Fluctuations - - - Europe: 1913-

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