Bruno Contini (Collegio Carlo Alberto)

“A neo-keynesian proposal for restoring growth in the Italian economy”

abstract

A neo-keynesian suggestion aimed at recovering after twenty years of dramatic economic crisis has recently been put forward in Italy. There are reasons to suppose that analogous measures could be reasonably adapted to other EU countries where the wellbeing of the low-middle class is being drastically squeezed by the austerity programs.

One of Italy’s main problems is the bad performance of the Public Administration at large (this statement does not contradict the fact that the quality of Italy’s National Sanitary Service is among the highest in Europe). This contributes to Italy’s low international credibility inherited by the long Berlusconi era, and to the scarce appeal that Italy has had for years on foreign as well as domestic investors. A major organizational reform of the P.A. cannot be delayed (it is in our present Government’s agenda, but it will be a long political battle against established priviledges). But Italy’s public sector is also severely undersized compared to almost all the major EU member countries. In addition the average age of public employees is now above 50, a consequence of the complete absence of age turnover since the early 2000’s, itself a consequence of the squeeze of public expenditure.

Table…. Low efficiency…….

An inflow of new young and well educated individuals cannot be procrastinated without risking an additional unbearable fall of the quality of public services provided to the vast majority of citizens, workers and entrepreneurs, as well as of Italy’s international standing. The proposal consists in filling between 800,000 and 1 million new positions in three years in areas where the shortages are particularly acute (table….). The proposed intake, while still insufficient to raise the number of Italian public employees to the level of France, UK and Germany, would have a major impact on the youth employment front. The cost of this project, is about 15-20 billion eu for each of three years (corresponding to an average individual take-home pay of 800-1000 eu /month). It should be financed by a progressive wealth tax of scope on financial activities (i.e. aimed specifically to implement the proposal). While the level of net wealth of Italian families is 7.19 times GDP, comparable to to France, UK and Japan, and higher than Germany, USA and Canada, the wealth tax on financial activities is currently lower in Italy than in much of Europe. One half of the families ought to be exempt from the tax. Starting from the 6-th decile of the distribution of financial wealth the proposed tax rate is 0,2%, increasing to 0,6% at the highest decile. The extension of a wealth tax of scope on real estate property is for the time being unfeasible due to prolonged failure to update the Real Estate Register, the lack of which would make it difficult to gauge the tax to prevent it from becoming highly regressive.

The project will simultaneously attain three important objectives: (i) a large impact on the employment front; (ii) a substantial improvement of GNP growth: by the end of the third year of implementation the operation will be self-sustainable, and growth will be 1.75 p.p. above its current level; (iii) a crucial role in making Italy’s Public Administration more efficient and more competitive vis-à-vis the rest of Europe.