Evaluating the sustainability of Italian public finances |
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| Institution: | 1. Department of International Trade, Takming University of Science and Technology, Taiwan;2. Department of Industrial Engineering and Management, National Chin-Yi University of Technology, Taiwan;3. Department of Finance, Feng Chia University, Taiwan;4. Department of International Business, Feng Chia University, Taiwan;1. Business School, Hong Kong University of Science and Technology, China;2. College of Management and Economics, Tianjin University, China |
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| 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. |
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| Keywords: | Fiscal sustainability Government debt Fiscal policy rules Non-linear models |
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