The dynamics of Italian public debt: alternative paths for fiscal consolidation

Casadio, Paolo; Paradiso, Antonio; Rao, B. Bhaskara

doi:10.1080/13504851.2011.591726

Cited by 12 publications

(13 citation statements)

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“…Dalena and Magazzino (2012) showed that public expenditure and revenues are cointegrated in each selected sub-period (Magazzino 2012). Casadio et al (2012) showed that a policy intervention aimed to stimulate the GDP growth over 1.8% allows to reach the target 100% debt-to-GDP ratio. The empirical evidence by Piergallini and Postigliola (2012) shows the occurrence of a significantly positive reaction of primary surpluses to debt when the debt/GDP ratio exceeded the trigger value of 110%.…”

Section: Empirical Literaturementioning

confidence: 99%

A wavelet analysis of Italian fiscal sustainability

Magazzino

Mutaşcu²

2019

Economic Structures

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The aim of this paper is to reassess the relationship between public primary deficit and debt (as GDP ratios), in order to test for Italian fiscal sustainability over the period 1862-2013. Italy has the second largest public debt/GDP ratio, and it represents the third economy in the European Union (EU), so that its public accounts stability is crucial for the whole area (Brady and Magazzino 2017a).The main problem for Italy, however, besides its high existing debt on which it is paying high interest in absolute terms, is that its growth is too slow. Since the euro area was founded, Italy's average annual real growth was 0.4%, just marginally above the lowest rate of 0.3% per annum for Greece and one percentage point below the mean value for the overall euro area. Italy's low growth rate, in turn, can be attributed to several structural causes. The country has recorded near zero productivity growth for years, and businesses are often very small, focus on the domestic market, and invest too little in R&D. Major inefficiencies exist in administration, e.g. in the justice system, and capital intensity is too low, also because investment declined by as much as 30% after the financial crisis. This was recently exacerbated by problems in the banking sector, including as a result of poor investment decisions in the past and short survival rates of governments over a long period, which have led to frequent election campaigns and delays in economic policy.Time domain analysis is the most widespread approach in the economic literature to study time series. Through such approach, the evolution of individual variables is modelled and multivariate relationships are assessed over time. Another strand of literature focuses on the frequency domain. Wavelets analysis reconciles both approaches, in the sense that both time and frequency domains are taken into account. With this approach, AbstractIn this paper, we analyse the relationship between public primary deficit and debt for Italian sustainability over the 1862-2013 years. Our empirical strategy uses the wavelet analysis. The empirical evidence suggests the presence of a substantial fiscal sustainability in the long run for Italy. This reversed much of the results of previous empirical literature, due to traditional time series approach and a shorter time horizon. which permits unrestricted use, distribution, and reproduction in any medium, provided you give appropriate credit to the original author(s) and the source, provide a link to the Creative Commons license, and indicate if changes were made.

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Section: Empirical Literaturementioning

confidence: 99%

A wavelet analysis of Italian fiscal sustainability

Magazzino

Mutaşcu²

2019

Economic Structures

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“…There is a positive however very small effect on inflation. Also investigating the role of macroeconomic variables including US GDP growth, the price of oil, EUR/USD exchange rate, European Central Bank monetary policy stance and domestic policy instruments on the Italian debt-to-GDP ratio, Casadio et al (2012) argue that external conditions play an important role in Italian fiscal consolidation. In contrast to the VAR methodology employed by most studies, they employ the seemingly unrelated regression (SUR) estimation method.…”

Section: The Literaturementioning

confidence: 99%

“…We follow the approach of Favero and Marcellino (2005), Hasko (2007), and Casadio et al (2012) in specifying a small macroeconomic model for Greece. We start off with the evolution of public debt::…”

Section: A Macroeconomic Modelmentioning

confidence: 99%

“…Against this backdrop, the purpose of the present paper is to examine the dynamics of the Greek public debt and investigate measures required for achieving fiscal consolidation. A macroeconomic model based on the work of Favero and Marcellino (2005), Hasko (2007), and Casadio et al (2012) is employed for this purpose. The empirical estimation is carried out using both the three stage least squares estimation technique and a structural VAR methodology (Blanchard and Watson, 1986;Bernanke, 1986;Sims, 1986).…”

Section: Introductionmentioning

confidence: 99%

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Forecasting Fiscal Variables: Only a Strong Growth Plan Can Sustain the Greek Austerity Programs - Evidence from Simultaneous and Structural Models

Apergis

Cooray

2013

SSRN Journal

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“…According their estimates, a significant and sustainable reduction of debt/GDP ratio can be achieved over the next years if policymakers raise (up to 0.30) fiscal pressure's elasticity to public debt evolution, and/or reduce primary government expenditure by four percentage points over the next 4 years. Based on the simple arithmetic of public finance, they performed a number of simulation regarding the evolution of public finance aggregates Casadio et al (2012). analyzed possible targets for the Italian debt-to-GDP ratio with a small macroeconomic model.…”

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confidence: 99%

Sustainability of Italian budgetary policies: a time series analysis (1862-2013)

Brady

Magazzino

2017

Eur J Gov Econ

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In this paper, we analyze the sustainability of Italian public finances using a unique database covering the period 1862-2013. This paper focuses on empirical tests for the sustainability and solvency of fiscal policies. A necessary but not sufficient condition implies that the growth rate of public debt should in the limit be smaller than the asymptotic rate of interest. In addition, the debt-to-GDP ratio must eventually stabilize at a steady-state level. The results of unit root and stationarity tests show that the variables are non-stationary at levels, but stationary in first-differences form, or I(1). However, some breaks in the series emerge, given internal and external crises (wars, oil shocks, regime changes, institutional reforms). Therefore, the empirical analysis is conducted for the entire period, as well as two sub‐periods (1862‐1913 and 1947‐2013). Moreover, anecdotal evidence and visual inspection of the series confirm our results. Furthermore, we conduct tests on cointegration, which evidence that a long-run relationship between public expenditure and revenues is found only for the first sub-period (1862-1913). In essence, the paper’s results reveal that Italy have sustainability problems in the Republican age.

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The dynamics of Italian public debt: alternative paths for fiscal consolidation

Cited by 12 publications

References 1 publication

A wavelet analysis of Italian fiscal sustainability

A wavelet analysis of Italian fiscal sustainability

Forecasting Fiscal Variables: Only a Strong Growth Plan Can Sustain the Greek Austerity Programs - Evidence from Simultaneous and Structural Models

Sustainability of Italian budgetary policies: a time series analysis (1862-2013)

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