Abstract
In 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.
Highlights
The aim of this paper is to reassess the relationship between public primary deficit and debt, in order to test for Italian fiscal sustainability over the period 1862–2013
2 Empirical literature we focus only on applied analysis on Italian fiscal sustainability
Here we found a high power area with the variables in a phase relation, but public deficit leads the debt, so that further increases of deficit/GDP ratio push up the debt stock, putting pressure on the Italian public finances
Summary
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. 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). Major inefficiencies exist in administration, e.g. in the justice system, and capital intensity is too low, 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
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