Introduzione sezione

Italy and fiscal rules: past performance and future prospects

Working Papers
  • N°1 -  Marzo 2022
  • ISSN

    ISSN 1972-411X

  • A CURA DI

    D. Assalve, C. Collura, E. Giachin Ricca, O. Ricchi, S. Teobaldo, R. Morea

The European Commission recently resumed a public consultation on the EU’s economic governance framework with the aim of gathering views and proposals on how to build a more transparent and effective fiscal policy framework. The present essay aims to assess current fiscal rules and alternative proposals that have been put forth by various authors and institutions over the past years. Our main purpose is to identify the critical aspects of fiscal rules and to build a toolkit allowing a better understanding of their implications under different economic circumstances and scenarios. We first take stock of existing fiscal rules as defined by the Stability and Growth Pact. We then review the main proposals of reform, notably the new expenditure rule designed by the European Fiscal Board (EFB). Using a forward-looking approach, we develop a tool for assessing the extent to which fiscal rules are i) counter-cyclical; ii) economically and politically viable; iii) able to ensure a credible fiscal adjustment; iv) able to provide “stable” prescriptions against sudden changes of underlying economic conditions. We focus on Italy as a case study for our broader analysis of fiscal rules. Starting from baseline growth and public finance forecasts, we project deficit and debt trajectories for Italy over a medium-term horizon assuming full compliance with each rule under examination from 2023 onwards, as the General Escape Clause is deactivated. We find that for Italy each rule embeds pros and cons with respect to the above-mentioned criteria. Overall, the EFB proposal appears to improve the framework in terms of stability and sustainability,