Abstract
In this paper, we investigate possible sources of declining economic growth in Italy beginning near the middle of the 1990s. A long-term data analysis suggests that the poor performance of the Italian economy cannot be blamed on an unfortunate business cycle contingency. Other countries of the euro area have shown better performance, and the macroeconomic data indicate that the Italian economy has not grown at the same rate as these other European economies. We investigate the sources of economic fluctuations in Italy by applying the business cycle accounting procedure introduced by Chari et al. (Econometrica 75(3):781–836, 2007). We analyze the relative importance of efficiency, labor, investment and government wedges for business cycles in Italy during the 1982–2008 period. We find that individual wedges have played different roles during this period; however, the efficiency wedge is shown to be the factor most responsible for the stagnation phase that began in approximately 1995. Our findings also show that the decline in labor market distortions that occurred in Italy during the 1990s alleviated the stagnation effect somewhat and prevented an even more abrupt slowdown in per capita output growth.
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Notes
Excluding the 2009 crisis, from 2000 to 2008, the average growth rate in Italy was equal to 1 % each year.
Moving from an average growth of 1.9 % to an average growth of 1.3 %.
Following Arpaia et al. (2009), figures for the labor income share are obtained using inter-sectoral data taken from the EU KLEMS database. The value 0.58 corresponds to the average labor share during the 1982–2008 period.
Population refers to all individuals 15–64 years in age.
This value is equal to the average hours worked in a quarter as a fraction of the total quarterly hours for the 1982–2008 period.
Alternatively, we can recover the government wedge as a residual from the resources constraint (6) by using data for per capita consumption, \(c_{t}\), per capita investment, \(x_{t}\) and per capita output, \(y_{t}\).
In the computation, we define \(\xi _{t+1}= Q\varepsilon _{t+1}\), where \(Q\) is a lower triangular matrix and \(\varepsilon _{t+1}\) is a white noise. This guarantees that the estimated matrix, \(V = QQ^{\prime }\), is positive semi-definite.
Consistent with the balanced growth path equilibrium implied by our model, the trend is assumed to be equal to the calibrated quarterly growth rate of technology, \(\gamma \).
Details about the sources of data and transformations used in our analysis are provided in the “Appendix”.
All variables are expressed in per capita values.
We take the yearly average because data for effective tax rates are available only at annual frequencies.
The authors also show that this difference is more pronounced for firms that introduce product innovation compared to firms that adopt process innovation.
For example, the authors show that the lending-deposit spread rate begins to decline substantially 4 years after deregulation in 1983.
The Conference Board Total Economy Database, January 2010, http://www.conference-board.org/economics/database.cfm.
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Acknowledgments
We wish to thank the Editor, and one anonymous referee for their useful comments. We also thank Michele Catalano, Asier Mariscal, Antonio Minniti, Paolo Onofri, Davide Raggi, Francesco Serti, and the seminar participants at the ASSET 2010 Annual Meeting in Alicante, and at the IEEE 2011 meeting in Pisa. Francesco Turino is grateful for the financial support from the Spanish Ministerio de Educación y Ciencia and FEDER funds (Project SEJ-2007-62656/ECON). The usual disclaimers apply.
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Appendix
Appendix
1.1 Business cycle accounting
1.1.1 Per capita output
Per capita output \(y_{t} =\) (GDP-Sales taxes)/Woring-age population
where
GDP \(=\) GDP in constant market prices, millions of 2000 euro.
Source: CONISTAT (http://con.istat.it/amerigo/default.asp), series ncfh3.PILFF.D
Sales Taxes \(=\) VAT + net taxes on products + import taxes, millions of 2000 euro.
Source: CONISTAT databank, series nvbh6.IVA.D
Working-age population \(=\) Population aged 15–64
Source: ISTAT.
1.1.2 Per capita worked hours
Per capita worked hours, \(l_{t}=\) (Total quarterly hours actually worked/Working-age population) / (47/4 weeks \(\times \) 112 hours per week)
where
Total quarterly hours actually worked \(=\) Quarterly seasonally adjusted worked hours from CONISTAT, series nvhbb.TOT.D
1.1.3 Per capita investment
Per capita investment, \(x_{t}=\) (Gross fixed investment \(+\) Personal consumption expenditures on durables \(-\) Sales Taxes \(\times \) Share of consumer durables in total consumer spending) /(Working-age population)
where
Gross Fixed Investment \(=\) Gross domestic capital formation, millions of 2000 euro
Source: CONISTAT databank, series ncfh3.INVFLTOF.D
Share of consumer durables in total consumer spending \(=\) (Consumption of durable goods/Total consumption)
Source: CONISTAT databank, series nci5c.DUR.D (Durables) and nci5c.TOTCFN.D (Total), millions of 2000 euro.
1.1.4 Per capita government consumption
Per capita government consumption, \(g_{t}=\) (Goverment Consumption \(+\) Net Exports)/(Working-age population)
where
Government consumption: Government expenditures, millions of 2000 euro
Source: CONISTAT databank, series ncfh3.CONFCOF.D
Net Export \(=\) Net export of goods and services, millions of 2000 euro.
Source: CONISTAT databank, series ncfh3.ESPBSFF.D (Exports), ncfh3.IMPBSFF.D (Imports).
1.2 Figure 1
Per capita GDP for Spain, Italy, France, Germany and the UK from The Conference Board Total Economy Database.Footnote 14
1.3 Table 1
1.3.1 GDP growth
Source: The Conference Board Total Economy Database.
1.3.2 Employment growth
Source: the OECD, LFS database.
1.3.3 Labor productivity growth and components
Source: ISTAT.
1.4 Figure 9
1.4.1 Effective tax wedge
Methodology of Martinez-Mongay (2000) using data from AMECO databank.
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Orsi, R., Turino, F. The last fifteen years of stagnation in Italy: a business cycle accounting perspective. Empir Econ 47, 469–494 (2014). https://doi.org/10.1007/s00181-013-0748-8
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DOI: https://doi.org/10.1007/s00181-013-0748-8