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1. The Euro Area’s Achilles Heel: Reassessing Italy’s Long Decline in the Context of European Integration and Globalisation

Author:
Dario Guarascio, Philipp Heimberger, and Francesco Zezza
Publication Date:
07-2023
Content Type:
Special Report
Institution:
The Vienna Institute for International Economic Studies (WIIW)
Abstract:
This paper analyses how Italy’s decades-long decline turned the country into the euro area’s Achilles heel, the most vulnerable spot in the common currency. We use a structuralist framework to synthesise different (competing) supply-side and demand-side explanations, accounting for long-term processes and sectoral interdependencies. We argue that structural domestic factors that were already present in the decades after World War II (‘original sins’) – low-cost competition and labour fragmentation, many small firms linked to low innovation, and a deep territorial divide – interacted with the policy constraints brought about by globalisation and European integration to exacerbate Italy’s decline vis-à-vis its euro area peers.
Topic:
Globalization, European Union, Regional Integration, and Macroeconomics
Political Geography:
Europe and Italy

2. The Cyclical Behaviour of Government Spending for Social Protection: Is the OECD Methodology Robust?

Author:
Aleksandr Arsenev, Philipp Heimberger, and Torben Schütz
Publication Date:
12-2023
Content Type:
Working Paper
Institution:
The Vienna Institute for International Economic Studies (WIIW)
Abstract:
Spending elasticities measure the reaction of different government spending components to the business cycle. They are important inputs for fiscal forecasts, and they are particularly relevant in the context of European Union (EU) fiscal rules, as elasticity estimates enter the estimation of fiscal space. This paper analyses the sensitivity of the estimation method used by the Organisation for Economic Co-operation and Development (OECD) and the European Commission to obtain government spending elasticities by focusing on 11 EU countries in the 1995-2020 period. Our results suggest that spending elasticities are sensitive to small variations in data and model specification. For most EU countries, we reject the assumption that only unemployment spending responds to cyclical variations. While unemployment spending is indeed a major driver of counter-cyclical social spending, other categories of social spending also show signs of responding to the business cycle.
Topic:
Budget, European Union, Finance, Macroeconomics, Public Debt, Social Spending, Public Spending, and Fiscal Deficit
Political Geography:
Europe, Greece, France, Poland, Germany, Denmark, Romania, Spain, Italy, Sweden, Austria, and Czechia