Sustainability of Italian Budgetary Policies: A Time Series Analysis (1862-2013)

The aim of this paper is to empirically investigate the sustainability of Italian national accounts in the years 1862-2013. The focus of the paper concerns applied tests related to the solvency and sustainability of fiscal policies. In fact, the growth rate of public debt should in the limit be smaller than the asymptotic rate of interest. Moreover, the debt-to-GDP ratio must eventually stabilize at a steady-state level. Unit root and stationarity tests show that the variables are first-difference stationary. The results of structural breaks tests evidence the presence of some breaks, due to internal and external crises. Thus, the applied analysis covers the entire period, but it also considers two different sub‐periods (1862‐1913 and 1947‐2013). Furthermore, several cointegration tests highlight the evidence of a long-run relationship between public revenue and expenditure only for the first sub-period (1862-1913). Our econometric insight reveals that Italy faced sustainability problems in the Republican age