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Are Italy's public finances sustainable? The role of demographics, productivity, and labour markets

  • Paolo Biraschi
  • Lorenzo Codogno

    ()

  • Federico Giammusso
  • Manuela Nenna
  • Juan Pradelli
Registered author(s):

    In light of the uncertainty of the effects of population ageing on growth and fiscal variables, it is sensible to ask whether Italy's public finances can achieve sustainability under the spending pressure exerted by future demographic and macroeconomic developments. The paper addresses this question by assessing long-term fiscal sustainability, following the commonlyagreed European methodology, under alternative scenarios considering a variety of issues that may have a bearing on Italy's public finance conditions, namely, immigration, life expectancy, female labour participation, and productivity growth. Despite the different hypotheses captured by the alternative scenarios, the paper finds that projected debt-to-GDP ratios decrease over time, as long as fiscal consolidation is achieved in the near future. It also shows a one-shot debt-reduction strategy is not a credible substitute for a budgetary-adjustment strategy. The paper concludes Italy's public finances are sustainable and can deal with future spending pressures resulting from the ageing population.

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    File URL: http://www.dt.tesoro.it/modules/documenti_it/analisi_progammazione/working_papers/n.-6-2008---Are-Italy-s-public-finances-sustainable.pdf
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    Paper provided by Department of the Treasury, Ministry of the Economy and of Finance in its series Working Papers with number wp2008-6.

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    Length: 32
    Date of creation:
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    Handle: RePEc:itt:wpaper:wp2008-6
    Contact details of provider: Web page: http://www.dt.tesoro.itEmail:


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    1. William G. Gale & Peter R. Orszag, 2004. "Budget Deficits, National Saving, and Interest Rates," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 35(2), pages 101-210.
    2. Francesco Giavazzi & Marco Pagano, 1990. "Can Severe Fiscal Contractions Be Expansionary? Tales of two Small Euopean Countries," Working Papers 89, Dipartimento Scienze Economiche, Universita' di Bologna.
    3. Alfonso ARPAIA & Alessandro TURRINI, . "Government Expenditure and Economic Growth in the EU: Long-Run Tendencies and Short-Term Adjustment," EcoMod2008 23800006, EcoMod.
    4. Giuseppe Carone & Declan Costello & Nuria Diez Guardia & Gilles Mourre & Bartosz Przywara & Aino Salomaki, 2005. "The economic impact of ageing populations in the EU25 Member States," European Economy - Economic Papers 236, Directorate General Economic and Monetary Affairs (DG ECFIN), European Commission.
    5. C�cile Denis & Daniel Grenouilleau & Kieran Mc Morrow & Werner R�ger, 2006. "Calculating potential growth rates and output gaps - A revised production function approach," European Economy - Economic Papers 247, Directorate General Economic and Monetary Affairs (DG ECFIN), European Commission.
    6. Daniel Leigh & David Hauner & Michael Skaarup, 2007. "Ensuring Fiscal Sustainability in G-7 Countries," IMF Working Papers 07/187, International Monetary Fund.
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