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Evaluating the sustainability of Italian public finances

Alessandro Piergallini () and Michele Postigliola ()

The North American Journal of Economics and Finance, 2020, vol. 53, issue C

Abstract: Are Italy’s primary-surplus policies compatible with the sustainability of government debt? We address the question by examining historical budget data in post-unification Italy, from 1861 to 2016. Controlling for temporary output, temporary spending and world war-time periods in assessing whether primary surpluses significantly reacted to changes in debt, we find the following results: (i) the hypothesis of nonlinearity in the surplus-debt relationship significantly outperforms the hypothesis of linearity; (ii) there exists a threshold level in the debt-GDP ratio, approximately equal to 105 percent, above which Italian fiscal policy makers are concerned with corrective actions to avoid insolvency; (iii) the robustly positive reaction of primary surpluses to debt beyond the trigger point ensures fiscal sustainability.

Keywords: Fiscal sustainability; Government debt; Fiscal policy rules; Non-linear models (search for similar items in EconPapers)
JEL-codes: N40 N43 N44 C24 E62 H60 (search for similar items in EconPapers)
Date: 2020
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DOI: 10.1016/j.najef.2020.101180

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