Italy's Superbonus 110%: messing up with demand stimulus and the need to reinvent fiscal policy

Lorenzo Codogno

LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library

Abstract: Since the Global Financial Crisis in 2008-2009, there has been flourishing literature on the role of fiscal policy in stimulating demand when the economy is in a deep recession. Past studies suggest the stimulus may make sense if it is temporary, targeted, and withdrawn quickly. However, since the pandemic, there has been a case for going big, when necessary, to prop up expectation, confidence and demand. This was exemplified by Italy's Superbonus 110%, a generous subsidy scheme to allow the energy-efficient renovation of residential buildings, which emerged as a significant policy response to the economic challenges posed by the pandemic. I argue that the Superbonus, while having a respectable economic aim, ended up impinging on the same sectors supported by the EU-funded investment plan, resulting in significant capacity constraints and misallocation of resources. Its excessive generosity brought a massive deterioration in public finances, while its returns in terms of economic growth were short of expectations. I conclude by drawing some policy lessons from Italy's experience, on what should be preserved and avoided, and on a possible reinvented role for fiscal policy in deep economic crisis.

Keywords: policy designs and consistency; crisis management; deficit and debt; national budget (search for similar items in EconPapers)
JEL-codes: E61 H10 H60 (search for similar items in EconPapers)
Pages: 27 pages
Date: 2024-07-01
New Economics Papers: this item is included in nep-eec
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