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Italy’s Spending Maze Runner – An analysis of the structure and evolution of public expenditure in Italy

Author

Listed:
  • Dimitri Lorenzani
  • Vito Ernesto Reitano

Abstract

This paper explores the composition and developments of public expenditure in Italy and compares them with other big Member States. On the basis of this analysis, it draws several possible policy implications. Based on the latest available data by economic classification and function, Italy’s public expenditure appears to be increasingly biased towards the elderly, while growth-enhancing spending has been markedly restrained during the crisis. Debt-servicing costs absorb significantly higher resources than in the rest of the euro area, so that Italy’s public expenditure remains above the euro area average as a share of potential GDP despite slightly lower primary expenditure. Overall, the paper suggests that it may be difficult in the future to contain Italy’s primary expenditure solely by relying on spending cuts, while leaving the current perimeter of State action unchanged. A systematic and rigorously implemented spending review would be needed to increase the efficiency of public expenditure and make its composition more growth-friendly, in order to support ongoing structural reform efforts and boost the country's potential growth. Finally, positive spending review measures enacted so far in Italy, such as the so-called “Fornero reform” to reduce the much higher-than-average pension expenditure and ensure its sustainability in the long run, should be fully implemented also with the objective of increasing labour market participation and the adequacy of future entitlements.

Suggested Citation

  • Dimitri Lorenzani & Vito Ernesto Reitano, 2015. "Italy’s Spending Maze Runner – An analysis of the structure and evolution of public expenditure in Italy," European Economy - Discussion Papers 023, Directorate General Economic and Financial Affairs (DG ECFIN), European Commission.
    • Handle: RePEc:euf:dispap:023
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    File URL: https://economy-finance.ec.europa.eu/publications/italys-spending-maze-runner-analysis-structure-and-evolution-public-expenditure-italy_en
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    Cited by:

    1. Asatryan, Zareh & Heinemann, Friedrich & Yeter, Mustafa & Rubio, Eulalia & Rinaldi, David & Zuleeg, Fabian, 2016. "Public sector reform: How the EU budget is used to encourage it. Study," ZEW Expertises, ZEW - Leibniz Centre for European Economic Research, number 147039.
    2. Francesco Prota & Maria Jennifer Grisorio, 2018. "Public expenditure in time of crisis: are Italian policymakers choosing the right mix?," Economia Politica: Journal of Analytical and Institutional Economics, Springer;Fondazione Edison, vol. 35(2), pages 337-365, August.
    3. Ferdinandusse, Marien & Checherita-Westphal, Cristina & Attinasi, Maria Grazia & Lalouette, Laure & Bańkowski, Krzysztof & Palaiodimos, Georgios & Trindade Campos, Maria Manuel, 2017. "Euro area fiscal stance," Occasional Paper Series 182, European Central Bank.
    4. Raffaele Fargnoli, 2020. "Adapting the EU Fiscal Governance to New Macroeconomics and Political Realities," RSCAS Working Papers 2020/03, European University Institute.

    More about this item

    JEL classification:

    • E61 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Policy Objectives; Policy Designs and Consistency; Policy Coordination
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • E63 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Comparative or Joint Analysis of Fiscal and Monetary Policy; Stabilization; Treasury Policy
    • H50 - Public Economics - - National Government Expenditures and Related Policies - - - General
    • H60 - Public Economics - - National Budget, Deficit, and Debt - - - General
    • H72 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Budget and Expenditures

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