The Prospects of the Italian Economy in the Centenary of Paolo Sylos Labini's Birth

Abstract

ABSTRACT The hundredth anniversary of Paolo Sylos Labini's birth seems an excellent opportunity to celebrate his contribution, particularly in light of the European post-COVID-19 extraordinary measures. These revived debates around the relationship between state and market, structural inequalities within Italy, and austerity (Papadimitriu et al. 2020; Palma 2020; Variato et al. 2020; Canelli et al. 2021). Inspired by a reflection on Sylos Labini's assessment of the Italian increasing debt/low-investment/low-growth decline, our rationale is the need to re-focus away from debt towards investment and growth. We compare this alternative focus to the theories underpinning austerity, including the Ricardian equivalence, the crowding-out argument, and the bond vigilantes hypothesis. Our work relies on wide-ranging data analysis and concentrates on three econometric models: a vector error correction model to analyse the relationship between public debt and GDP in the long-run; a vector auto-regression model, which analyses the relationship between GDP and the components of debt, interest rates spread, and exchange rate in the short-run; and an additional vector auto-regression model to examine the primary balance components, including fiscal spending and revenues. We find that Sylos Labini's warnings and his view of the relation between economic development and civil development are no less relevant today.