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Italy : escaping the high debt and low-growth trap

Author

Listed:
  • Céline Antonin

    (Observatoire français des conjonctures économiques)

  • Mattia Guerini

    (Scuola Superiore Sant'Anna)

  • Mauro Napoletano

    (Observatoire français des conjonctures économiques)

  • Francesco Vona

    (Observatoire français des conjonctures économiques)

Abstract

With its public debt amounting to 132.1% of GDP and its negative productivity growth over the last twenty years, Italy appears to be the sick man of the European Union. In this Policy brief, we focus on its two main plights: high public debt burden on the one hand, sluggish GDP and productivity growth on the other hand. Both issues are intimately related: a slow growth limits the budgetary margins and casts doubts on public debt sustainability; the reduced fiscal space in turn weighs on growth and public investment. The first part is dedicated to describing the history and causes of Italian public debt. A first phase, from the 1960s to the 1980s, was characterized by a positive but moderate growth of debt. A second phase saw the explosion of public debt, from 54% of GDP in 1980 to roughly 117% in 1994. The budget law of the Amato's government in 1992 initiated a third phase, marked by a significant fiscal consolidation effort, and the decrease of the public debt to GDP ratio. The Great Recession interrupted this consolidation era and a last phase began from 2008 on, when the public debt-to-GDP ratio consequently increased. In the second part, we review some of the structural weaknesses of the Italian economy. We notably emphasize the specialization bias towards low tech sectors, the “nanism” of Italian firms, the misallocation of talents and resources, the North-South divide and its related labor market consequences. We conclude with four policy recommendations for a revival of growth in Italy. Our first proposal is technical and proposes a new European fiscal golden rule which would remove specific public investments from the computation of structural primary balance. Our second and third proposals are related to the regulation of the labor market, with the introduction of a minimum wage on the one hand, and the facilitation of retraining policies on the other hand. Last, we call for a revival of industrial policies in order to foster knowledge accumulation and firm learning. Our view is that Italy's fate is inextricably related to Europe's and that Italy needs more rather than less Europe.

Suggested Citation

  • Céline Antonin & Mattia Guerini & Mauro Napoletano & Francesco Vona, 2019. "Italy : escaping the high debt and low-growth trap," Sciences Po publications 07/2019, Sciences Po.
  • Handle: RePEc:spo:wpmain:info:hdl:2441/7ebbvbelkk9oq90vtohpd2346t
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    Cited by:

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    2. Larry Hughes & Moniek Jong & Zach Thorne, 2021. "(De)coupling and (De)carbonizing in the economies and energy systems of the G20," Environment, Development and Sustainability: A Multidisciplinary Approach to the Theory and Practice of Sustainable Development, Springer, vol. 23(4), pages 5614-5639, April.
    3. Nicola Cassandro & Marco Centra & Dario Guarascio & Piero Esposito, 2021. "What drives employment–unemployment transitions? Evidence from Italian task-based data," Economia Politica: Journal of Analytical and Institutional Economics, Springer;Fondazione Edison, vol. 38(3), pages 1109-1147, October.
    4. Daniele, SCHILIRO', 2019. "Public debt and growth in Italy:Analysis and policy proposals," MPRA Paper 97950, University Library of Munich, Germany, revised Nov 2019.

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    More about this item

    Keywords

    Italy; Growth; Productivity; Public debt;
    All these keywords.

    JEL classification:

    • E60 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - General
    • E61 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Policy Objectives; Policy Designs and Consistency; Policy Coordination
    • O40 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General

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