Fiscal Consolidation Policies in the Context of Italy's Two Recessions

Abstract

AbstractItaly experienced a double‐dip Great Recession: after the start of the global financial crisis, Italy had a second serious recession in 2011 as a result of the sovereign debt crisis. The reaction of Italian governments was minimal at the beginning but more serious action has been taken to address Italy's fiscal problems since the start of the sovereign debt crisis in 2011. The policies adopted have helped to move the public finances to a more sustainable position, but household real incomes decreased by 13 per cent, with this reduction being quite unevenly felt across the household income distribution. The medium‐term outlook is still uncertain: a great deal depends on the capacity of the Italian economy to reduce the level of public debt and to return to sustained economic growth, which has been very weak for more than a decade.