An (Un)Pleasant Arithmetic of Fiscal Policy: the Case of Italian Public Debt

Luigi Marattin and Massimiliano Marzo

MPRA Paper from University Library of Munich, Germany

Abstract: Using the simple arithmetic of government budget constraint, we perform an analysis on the Italian case, investigating the consequences on the main public finance aggregates of the adoption of a fiscal policy rule responding to past real debt/GDP ratio. Such a rule, firmly grounded in the economic analysis, would allow the reduction of Italy's outstanding stock of debt without requiring the strict adherence to the 3% criterion for deficit/GDP ratio, as prescribed by SGP. We perform a forecasting exercise under five alternative scenarios, analyze the details of a structural debt reduction strategy with alternative yearly step, and finally carry out a counterfactual exercise by applying our proposed rule to the period 1994-2006.

Keywords: fiscal consolidation; public debt reduction; fiscal policy (search for similar items in EconPapers)
JEL-codes: E61 E63 (search for similar items in EconPapers)
Date: 2008-01
New Economics Papers: this item is included in nep-mac
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Working Paper: A (Un)Pleasant Arithmetic of Fiscal Policy: the Case of Italian Public Debt (2008)
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