Public Investment Trends and Policy Perspective

In most European countries, years of investment in the welfare and education of citizens have helped to moderate public account imbalances, acting not only on the current deficit but also on growth. The outcomes achieved in the different countries are the result of very heterogeneous national situations as well as the different types of expenditures made, which are suitable for fostering growth and improving the productive environment. The hypothesis we want to test is if the level of public investment spending in Italy is sufficient to explain the low GDP growth in the last decade. Our core idea is that the lag in Italy’s infrastructure endowment does not primarily reflect a lack of financial resources, but it lies in the mechanisms of expenditure management. Analysing data on public investment spending, the level of output and the debt-to-GDP ratio in Italy, we suggest that the quality of public capital potentially could have significant explanatory power in accounting for income gaps between Italy and other European countries. The institutional Italian framework shows that a lot of existing rules are well designed to reach efficiency but are ignored by the institutions. Moreover, since the way public resources are deployed has very significant effects on GDP trends in subsequent years, we analyse the exceptional resources made available by the Recovery and Resilience Facility as a moment of great potential opportunity. In a situation of low growth or even recession such as the one we are currently experiencing, it is necessary to take advantage of the spending by selecting the interventions that ensure a higher multiplier and guarantee sustained growth.