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Are EU Policies Effective to Tackle the Covid-19 Crisis? The Case of Italy

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  • Rosa Canelli
  • Giuseppe Fontana
  • Riccardo Realfonzo
  • Marco Veronese Passarella

Abstract

In response to the economic crisis unleashed by the Covid-19 pandemic, the EU authorities have launched extraordinary fiscal and monetary measures in support of member states. The impact of these measures is of great significance for Italy, the EU third-largest economy, which as a result of the pandemic has suffered a dramatic decline in GDP, and a further rise in the government debt to GDP ratio. Building on a stock-flow consistent, structural macro-econometric model, this paper shows that the currently planned EU measures are insufficient to boost the recovery of the Italian economy, and to ensure the sustainability of its government debt. The paper also assesses two potential alternative policies. A fiscal consolidation (i.e. austerity) policy would exacerbate the decline in GDP and further deteriorate the government debt to GDP ratio. By contrast, a money-financed fiscal stimulus policy could lead the Italian economy on a path of sustainable growth, with positive outcomes for employment and government finances.

Suggested Citation

  • Rosa Canelli & Giuseppe Fontana & Riccardo Realfonzo & Marco Veronese Passarella, 2021. "Are EU Policies Effective to Tackle the Covid-19 Crisis? The Case of Italy," Review of Political Economy, Taylor & Francis Journals, vol. 33(3), pages 432-461, July.
    • Handle: RePEc:taf:revpoe:v:33:y:2021:i:3:p:432-461
    DOI: 10.1080/09538259.2021.1876477
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    Citations

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    Cited by:

    1. Serghei PETIGHIN, 2024. "Pandemic-resilient investment policies: lessons learned from the COVID-19 crisis," Romanian Journal of Economics, Institute of National Economy, vol. 58(1(67)), pages 117-132, June.
    2. Canelli, Rosa & Fontana, Giuseppe & Realfonzo, Riccardo & Passarella, Marco Veronese, 2024. "Energy crisis, economic growth and public finance in Italy," Energy Economics, Elsevier, vol. 132(C).
    3. Hanns de la Fuente-Mella & Rolando Rubilar & Karime Chahuán-Jiménez & Víctor Leiva, 2021. "Modeling COVID-19 Cases Statistically and Evaluating Their Effect on the Economy of Countries," Mathematics, MDPI, vol. 9(13), pages 1-13, July.
    4. Barbieri Hermitte, Riccardo & Cagnazzo, Alberto & Favero, Carlo A. & Felici, Francesco & Macauda, Valeria & Nucci, Francesco & Tegami, Cristian, 2023. "ITFIN: A stock-flow consistent model for the Italian economy," Economic Modelling, Elsevier, vol. 119(C).
    5. Paolo Maranzano & Mario Noera & Roberto Romano, 2021. "The European industrial challenge and the Italian NRRP," PSL Quarterly Review, Economia civile, vol. 74(298), pages 207-218.

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