Presentation of the paper

The Origins of the Sovereign Debt of Italy: a Common Pool Issue? 

Speaker

Luciano Mauro

University of Trieste

Abstract

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.

For more information:

crenos@unica.it