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The great fiscal lever: An Italian economic obsession

A. Terzi, (2018), “The great fiscal lever: An Italian economic obsession”, 21 Αυγούστου

“Give me a fulcrum and a lever long enough, and I shall move the world” – so the great Greek mathematician Archimedes used to say. In the Italian macroeconomic context, many are similarly convinced that if only we pushed more on the fiscal lever, we could set in motion an economy that has stagnated for almost 20 years, and put it back on a positive growth trajectory. This school of thought is well illustrated by a recent quote from Finance Minister Giovanni Tria, who explained how “public investment will be the [government’s] silver-bullet to foster growth”. This, in his view, will generate enough GDP expansion and fiscal space to finance the spending promises included in the coalition agreement, such as a pension counter-reform, a flat tax, and a universal basic income. The same fiscal convictions are behind the demand in the coalition agreement that public investment be excluded from deficit computations in EU fiscal rules. These views are not consigned to anti-establishment parties, rather they are pervasive across the political spectrum. For a long time, similar positions have been advocated by former prime minister Matteo Renzi, for example. Even Confindustria, the General Confederation of Italian Industry, would be in favour of an increase in VAT if used to finance more public investment, as this “would foster growth and reduce the debt-to-GDP ratio”.

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