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Interest payment on government debt and public spending in Italy: An empirical analysis

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  • Cellini, Roberto
  • Prezzavento, Luca C

Abstract

This article investigates how the public expenditure structure, and the expenditures in specific fields of the public sector, are affected by the dynamics of interest payment on public debt, in the case of Italy. Italy has the third largest public debt in the world, and interest payments are of considerable size; though not steadily, however, their dynamics has been decreasing over the last two decades. This could have represented an opportunity for restructuring public expenditure. However, our results show that there is no effect of the dynamics of interest payments upon the dynamics of primary public expenditure. The result is based on the analysis of both Granger-causality links and simultaneous relations between interest payments and primary public expenditure. Public expenditure is considered in aggregate terms in current and capital account, and as articulated in a number of specific areas.

Suggested Citation

  • Cellini, Roberto & Prezzavento, Luca C, 2016. "Interest payment on government debt and public spending in Italy: An empirical analysis," MPRA Paper 75492, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:75492
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    References listed on IDEAS

    as
    1. Gilberto Muraro, 2015. "La prima esperienza di Spending Review in Italia," ECONOMIA PUBBLICA, FrancoAngeli Editore, vol. 2015(1), pages 13-30.
    2. Giancarlo Corsetti & André Meier & Gernot J. Müller, 2012. "Fiscal Stimulus with Spending Reversals," The Review of Economics and Statistics, MIT Press, vol. 94(4), pages 878-895, November.
    3. Gianluca Cafiso & Roberto Cellini, 2014. "Fiscal consolidations and public debt in Europe," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 21(4), pages 614-644, August.
    4. Granger, C. W. J., 1988. "Some recent development in a concept of causality," Journal of Econometrics, Elsevier, vol. 39(1-2), pages 199-211.
    5. Alexandra Bibbee & Alessandro Goglio, 2002. "Public Spending in Italy: Policies to Enhance Its Effectiveness," OECD Economics Department Working Papers 324, OECD Publishing.
    6. Alberto Alesina & Silvia Ardagna, 2010. "Large Changes in Fiscal Policy: Taxes versus Spending," NBER Chapters, in: Tax Policy and the Economy, Volume 24, pages 35-68, National Bureau of Economic Research, Inc.
    7. Giordano, Raffaela & Momigliano, Sandro & Neri, Stefano & Perotti, Roberto, 2007. "The effects of fiscal policy in Italy: Evidence from a VAR model," European Journal of Political Economy, Elsevier, vol. 23(3), pages 707-733, September.
    8. Granger, C W J, 1969. "Investigating Causal Relations by Econometric Models and Cross-Spectral Methods," Econometrica, Econometric Society, vol. 37(3), pages 424-438, July.
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    More about this item

    Keywords

    Public debt; Public expenditure; Interest payment; Debt cost; Italy.;
    All these keywords.

    JEL classification:

    • H50 - Public Economics - - National Government Expenditures and Related Policies - - - General
    • H61 - Public Economics - - National Budget, Deficit, and Debt - - - Budget; Budget Systems

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