New Eu Rules, Fiscal Restriction and Pressure on Household Budgets

Fedele De Novellis and Valentina Ferraris

Rivista economica del Mezzogiorno, 2024, issue 4, 599-619

Abstract: After years marked by extraordinary measures introduced to counter the effects of the pandemic and the energy crisis, the Stability Pact has been reinstated, ushering in a phase of fiscal consolidation. Italian fiscal policy remained expansionary in 2023, with the deficit exceeding 7% of GDP, primarily due to the impact of the "Superbonus". With the reinstatement of the Stability Pact, Italy’s fiscal policy must now reconcile four complex dynamics: the increase in capital expenditure driven by European NGEU policies; the rise in debt servicing costs resulting from central bank decisions and public debt dynamics; the goal of containing the tax burden, in line with government priorities; and the need to reduce the deficit, as required by European fiscal rules. The Medium-Term Structural Budget Plan outlines measures to control net primary expenditure and achieve a positive primary balance as early as 2025. Part of the adjustment has been facilitated by inflation, which limits real expenditure growth while boosting revenues through fiscal drag. The implicit fiscal tightening is substantial, placing Italy’s public finances in a delicate phase, characterized by stringent constraints and the pressing need to balance fiscal discipline with essential investments for economic growth and social cohesion.

Keywords: Stability Pact; Fiscal Rules; Fiscal Policy; Deficit; Debt (search for similar items in EconPapers)
Date: 2024
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