Are Italy's public finances sustainable? The role of demographics, productivity, and labour markets

Paolo Biraschi, Lorenzo Codogno (), Federico Giammusso, Manuela Nenna and Juan Pradelli

Working Papers from Department of the Treasury, Ministry of the Economy and of Finance

Abstract: In light of the uncertainty of the effects of population ageing on growth and fiscal variables, it is sensible to ask whether Italy's public finances can achieve sustainability under the spending pressure exerted by future demographic and macroeconomic developments. The paper addresses this question by assessing long-term fiscal sustainability, following the commonlyagreed European methodology, under alternative scenarios considering a variety of issues that may have a bearing on Italy's public finance conditions, namely, immigration, life expectancy, female labour participation, and productivity growth. Despite the different hypotheses captured by the alternative scenarios, the paper finds that projected debt-to-GDP ratios decrease over time, as long as fiscal consolidation is achieved in the near future. It also shows a one-shot debt-reduction strategy is not a credible substitute for a budgetary-adjustment strategy. The paper concludes Italy's public finances are sustainable and can deal with future spending pressures resulting from the ageing population.

Keywords: Fiscal Sustainability; Fiscal Policy (search for similar items in EconPapers)
JEL-codes: E62 H55 H63 (search for similar items in EconPapers)
Pages: 32
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