Aula Magna, Economia
Via Sant'Ignazio 74, Cagliari
Presentation of the paper
The Origins of the Sovereign Debt of Italy: a Common Pool Issue?
University of Trieste
Luciano Mauro, Cesare Biuatti, Gaetano Carmeci (University of Trieste)
Italy has the third largest public debt of the World in absolute terms and the eighth when it is GDP weighted. In addition, Italy presents the largest and most persistent development gap among its regional economies in the group of the advanced countries. We present evidence in favor of a relationship between these two empirical facts by reconstructing the entire dynamics of national public deficit as a weighted sum of four macro regional deficits (Northeast, Northwest, Centre and South) . We show that the ultimate cause of the accumulation of public debt in Italy lies in the extraordinary fiscal imbalance of the Southern regions. We then focus on the determinants of the regional public deficits and their persistence. Thanks to the reconstruction of the regional deficit time series we are able to test empirically many of the several theoretical approaches suggested in the literature, including the common pool - geographically dispersed interest approach not yet considered for the Italian case. This approach turns out to be one of the best candidates to account for the size and persistence of Southern regional deficits. The whole evidence suggests that Italian Public Finance troubles are due to the existence of a common pool issue coupled with pork barrel politics favored by the complex geo-political equilibrium characterizing Italy for a long period. All this has allowed the Southern regions of Italy to generate deficits so large and persistent that they have hoarded the entire Italian National debt.
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