64th Conference on Government Studies
Economic development, financial constraints and service quality:
investments and guarantees
Public investment
for developing the economy
Address by the Governor of the Bank of Italy
Ignazio Visco

In the last decade Italy's economy experienced the most acute crisis in its history.
The double-dip recession, during which GDP contracted by roughly nine percentage
points, was followed by an anaemic and bumpy recovery: from 2013 to today, less
than half of this lost ground has been recouped. Against this backdrop, there have been
calls from many quarters for higher public spending, which can have positive effects
on economic activity in the short term and on growth potential in the longer term.
The boost from increased spending is usually greater when this is financed
by a deficit. It can be even stronger if the investments made are matched by
private capital, increasing its returns at the margin and thereby stimulating firms'
investment expenditure. In the medium to long term greater growth potential comes
from creating new opportunities for economic activity and stimulating innovation;
both can be achieved through the completion of material infrastructure, especially
if tech-intensive, and above all through investment in research and knowledge.
In the short term the increase in GDP, measured by the 'investment multiplier',
can be so strong as to exceed the growth in public debt owing to the deficit. But if
this fails to trigger the longer-term effect on growth potential, the reduction in the
ratio of debt to GDP will be short-lived: the deficit will continue to fuel the debt and
GDP will start to grow again at a pace similar to that preceding the spending boost.
The size of the multiplier depends on a number of important variables:
maximizing the direct impact on GDP requires rapid and efficient interventions
and the ability to identify those capable of determining an actual qualitative and
quantitative increase in public capital; maintaining orderly financial conditions is
vital to prevent the 'crowding-out' of private investment, which can be discouraged
by a rise in interest rates. The careful selection of the programmes to finance is
also crucial for achieving the longer-term effects on growth potential; it must not
penalize the resources available for immaterial infrastructure.
The constraints imposed by the high public debt must not be overlooked. An
unproductive increase in the deficit would end up worsening the outlook for the
public finances, feeding investor doubts and raising the risk premium on Italian
government securities. This could soon put the ratio of public debt to GDP on an
unsustainable course.
Given the current public finance conditions and the low efficiency of public
administration, any recourse to deficit spending requires caution, to ensure that
resources are actually channelled to supporting economic activity in the short and
longer term. Even if an effective investment policy were to succeed in putting
the economy on a higher growth trajectory, it would still be necessary to define
a credible strategy within the confines of fiscal objectives and reform plans, such
as to determine a reduction in the risk premium on Italian government securities.
In this scenario the ratio of debt to GDP would begin to gradually decline, all
the more rapidly the smaller the difference between interest payments and the
nominal growth of the economy and the larger the fiscal surplus net of interest
expenditure.
Public investment and aggregate demand
It is well known that so-called 'direct' public spending, such as that on
investment, can have a stronger impact on aggregate demand than expenditure
with 'indirect' effects, such as public transfers, a portion of which can be saved by
their beneficiaries, to an increasing extent as income rises.
Any accurate assessment of the short-term macroeconomic effects of higher
public investment is, however, subject to a large degree of uncertainty. The size
of the multiplier (i.e. the increase in GDP generated by higher deficit spending)
depends on many factors: the extent to which productive resources are utilized,
the monetary policy stance and attendant financial conditions; eventual lags
and inefficiencies in implementing investment programmes; and the market's
assessment of the outlook for debt sustainability following a spending hike.
Simulations made over a short to medium term horizon using the Bank
of Italy's quarterly econometric model indicate that in the most favourable
scenario the multiplier is above one and the increase in GDP obtained by higher
investment leads to a reduction in the ratio of debt to GDP over a five-year period
(Table 1). It is reasonable to suppose that if investments are not carefully selected,
or their implementation dogged by waste and inefficiencies, the multiplier would
be considerably lower, nearing the (lower) one for spending on transfers. In such a
scenario the ratio of public debt to GDP would rise. A similar result would obtain
if the spending plan were to stoke investor fears: higher financing costs (for the
public sector and therefore for the private one as well) would weaken the stimulus
to economic activity from increased investment, while the deficit would widen both
because of lower economic growth and the progressive rise in interest expenditure.
It is difficult to assess the potential impact of a higher deficit on sovereign
risk premiums: the relationship is non-linear and volatile, influenced by many
variables some of which are not immediately quantifiable. If the fiscal expansion
were accompanied by a deterioration in investor confidence such as that which,
for various reasons, occurred between 2011 and 2012, the impact on interest rates
could, like then, be especially strong. It is impossible to apply to cases like this the
estimates based on the figures recorded in advanced economies in normal financial
conditions. Nor should it be forgotten that every year the State must issue around
400 billion euros in public debt.
The econometric model does not explicitly take account of the complementarity
between public and private capital in firms' production function. Public investments
capable of increasing the profitability of private capital, by encouraging its
accumulation, can translate into higher values of the multiplier.1 The empirical
literature on this complementarity is extensive but - in part owing to non-negligible
methodological difficulties - has not produced univocal findings. The estimated
effects nevertheless confirm its importance.2
While the simulations are not fully comparable, econometric exercises
conducted by other institutions nonetheless highlight the key role of the factors I
mentioned earlier: the reaction of monetary policy, the ability to select investment
programmes judiciously and carry them out without delay or waste, and expectations
concerning future developments in public finances (Table 2).3
Public investment and growth potential
Economic analysis has long recognized that technical progress and total factor
productivity dynamics are the true engine of economic growth in the advanced
countries, where the driving forces of the initial rapid accumulation of physical
1
See L. Burlon, A. Locarno, A. Notarpietro and M. Pisani, 'Public Investment and Monetary Policy
Stance in the Euro Area', Banca d'Italia, Temi di Discussione (Working Papers), 1150, 2017.
2
Reviews of the literature are provided in: A. M. Pereira and J. M. Andraz, 'On the Economic Effects
of Public Infrastructure Investment: A Survey of the International Evidence', Journal of Economic
Development, 38, 4, 2013; W. Romp and J. de Haan, 'Public Capital and Economic Growth: A Critical
Survey', Perspektiven der Wirtschaftspolitik, 8, 1, 2007; and P. R. D. Bom and J. E. Ligthart, 'What
Have We Learned from Three Decades of Research on the Productivity of Public Capital?', Journal of
Economic Surveys, 28, 5, 2014.
3
For a review and comparison of the different estimates, see F. Busetti, C. Giorgiantonio, G. Ivaldi,
S. Mocetti, A. Notarpietro and P. Tommasino, 'Capitale e investimenti pubblici in Italia: misurazione,
effetti macroeconomici, criticità procedurali', Banca d'Italia, Questioni di Economia e Finanza
(Occasional Papers), 2018 (forthcoming).
capital and of labour force growth have waned. An adequate endowment of public
capital can facilitate the adoption of new technologies and the reorganization of
production processes, also fostering the creation of new firms. It can prove essential
in supporting the early development of especially innovative technologies. It
must be acknowledged, however, that the relationship between public capital
accumulation and economic development, while crucial, remains largely elusive.
Of course, public capital comprises not only material infrastructure such
-
as transport, telecommunications and energy networks but also the body of
-
knowledge and skills available to an economy. These two types of infrastructure,
material and immaterial, share some of the characteristics of public goods, and
without government intervention they would be available in insufficient quantity.
The State supports investment in immaterial capital in two ways. Directly,
through scientific research in public universities and public research institutions
and through the provision of education; indirectly, in the form of subsidies and
tax incentives to the private sector. There is evidence that both these forms of
intervention, if well designed, have a positive impact on economic growth. In a
context of rapid technological change, fostering investment in human capital and
improving its quality appears equally, if not more, important than investing in
material infrastructure, especially in our country. Public spending on education
is around 4 per cent of GDP, much lower than the euro-area average (Figure 1).
Among the advanced countries, Italy's labour force has one of the lowest rankings
The gap with the other countries is also pronounced for
for labour force skills.4
research and development, although this is due almost entirely to the private-sector
component of expenditure (Figure 2).
Public investment expenditure and infrastructure endowment in Italy
In Italy, general government gross fixed capital formation has decreased in
recent years and is below that recorded in other European countries (Figure 3). In
nominal terms, it has fallen by an annual average of 4 per cent since 2008; while
less evident, this downward trend is also visible in the rest of the euro area. As a
percentage of GDP, expenditure in Italy diminished from 3 per cent in 2008 to 2
per cent in 2017; the reduction was concentrated in local government entities. The
European Commission has recently estimated a public investment gap for Italy.5
It is worth bearing in mind that the economic meaning of the expenditure items
does not always coincide with accounting classifications. The outlays recorded
in general government accounts under the item 'gross fixed investment' are not
entirely allocated to material infrastructure, nor do they represent the totality of the
financial resources earmarked for such purposes. About half of the outlays concern
other types of expenditure, for example that on plant, equipment and patents.
Investment in material infrastructure is also made by non-public sector entities that
nevertheless carry out public utility projects (e.g. licenced operators in the railway,
motorway, energy and telecommunications sectors).6 Only part of this expenditure
goes through government financial accounts and is recorded under 'contributions
to investments', a very heterogeneous item whose composition is affected by
national specificities in the sectoral classification of the entities involved (within
or outside the general government perimeter) and the ways in which public utilities
are regulated.
Measuring a country's infrastructure endowment is a complex exercise. One
can use financial indicators based on the resources employed or instead rely on
physical endowment indicators (e.g. the length and density of transport networks,
energy and water supply, and telecommunications), which can also reflect
topographical differences between regions and the degree of efficiency with which
the resources are utilized. Finally, there are indices whose aim is to capture the
overall adequacy of infrastructural networks, as far as possible taking account of
potential demand, network interconnections, and congestion phenomena.
If we use indicators based on the permanent inventory method, which accumulates
the time series of annual investment expenditure net of the estimated depreciation,
Italy's situation appears broadly in line with that of the major euro-area economies
(Figure 4). Compared with the early 2000s, the gap has widened with respect to
France, but there has been an improvement compared with Germany and Spain.7
If we take physical indicators of infrastructure endowment and set them in
relation to appropriate variables of scale, we get different results. For example,
relative to the population (an albeit very rough measure of the potential demand for
transport), the Italian road and railway networks turn out to be much less extensive
than those of France, Germany and Spain. Similarly, if we look at the minimum
travel time between two regions, weighted by population, Italy is once again at a
disadvantage compared with the European average, suggesting the possible effects
of congestion (Figure 5).8
Finally, subjective assessments are used to measure the adequacy of a
country's entire infrastructure endowment - and therefore not just transport -
though great care must be taken when interpreting them. For example, the World
Economic Forum produces a synthetic index covering 137 countries; Italy ranks
58th, far behind all the other major European countries.9 According to a similar
study conducted by the European Investment Bank in 2017 (though confined to
European countries and municipal infrastructure), Italy is qualitatively analogous
to Spain, but behind France, Germany and the EU average.10
All in all we can see a gap between what is suggested by the indicators
constructed based on historical expenditure and what can be derived from more
analytical indicators of the adequacy of infrastructure networks (Italy is found
to be lagging behind the other European countries only by the second group of
indicators). It could be assumed that this gap is also partly attributable to less
'efficient' completion of public works.11 As I remarked earlier, efficiency is a key
variable in determining the macroeconomic impact of investment expenditure,
both in the short and long term.
Completion of public works
While the available data do not enable us to make systematic and detailed
comparisons, there is evidence that the average completion times and costs for
public works are relatively high in our country. According to the audit performed
in 2018 by the European Court of Auditors, Italy has the highest constructions costs
of any EU country for completed high-speed rail lines (€28 million per kilometre,
compared with €12 million for Spain, €13 million for Germany and €15 million
for France). If we add up the costs of projects already completed with those in
progress, we find that Italy's cost per kilometre rises to €33 million, as against €14
million for Spain and €15 million each for Germany and France. Our country also
falls far behind in terms of completion times.12
Surveys conducted over the last decade have shown that, in Italy, the average
costs per kilometre and completion times for high-speed rail lines have been
about three times those of France and Spain; the average costs per kilometre for
roads were more than double those of Spain. As for major projects co-financed
by the European Regional Development Fund, these studies indicated time and
cost overruns in Italy equal, respectively, to more than triple and double the EU
average.13 It does not seem that the extent of these differences can be explained
merely by the distinctive orographic features of each country.
The various phases of construction have differing impacts. The length of
'transition' periods, that is, the time between the end of one procedural phase
and the start of the next (for example, the planning and awarding of contracts)
or between sub-phases (for example, preliminary, final and executive planning),
has a considerable impact on project timelines. These periods, which are at least
in part absorbed by administrative activities and inefficiencies, account for on
average around 54 per cent of a project's total duration (rising to 60 per cent if one
considers only the planning phase).
Over the last few years average completion times have risen. The increase
has related solely to the tendering and execution phases, while the length of the
planning phase has remained fairly stable. But there are wide regional variations:
it is estimated that the length of time required in Sicily, Molise and Basilicata to
complete the same project is more than 30 per cent higher than that required in
Lombardy and Emilia Romagna.14 This means that, over and above addressing a
12
The audit was carried out on the high-speed lines of six European countries and analysed more
than 5,000 km of infrastructure on ten high-speed rail lines covering around 50 per cent of the existing
lines in Europe. See European Court of Auditors, A European High-Speed Rail Network: Not a Reality
but an Ineffective Patchwork, Special Report, 19, Luxembourg, 2018.
13
For a discussion of this topic and the associated references see: I. Visco, 'Efficient spending on
infrastructure', address by the Governor of the Bank of Italy before the Chamber of Deputies, 19 June
2012 (only in Italian); Banca d'Italia, 'Infrastructure in Italy: endowment, planning, construction',
F. Balassone and P. Casadio, eds., Seminari e Convegni (Workshops and Conferences), 7, 2011; and
Banca d'Italia, 'The efficiency of infrastructure spending', F. Balassone, ed., Seminari e Convegni
(Workshops and Conferences), 10, 2012.
14
See the Agency for Territorial Cohesion's report on public works completion times, Rapporto sui tempi
di attuazione delle opere pubbliche (only in Italian), 13 July 2018.
scarcity of resources or the limitations of the applicable legislation, it is critical
that we identify and spread best practices.
According to data from the National Anti-Corruption Authority on contracts
awarded by Italian municipalities between 2009 and 2014, for equal contract
amounts, the tendering and execution phases were shorter for negotiated procedures
than they were for competitive ones (by about one year). There is, however,
evidence that although there are benefits in terms of cutting times, recourse to more
discretional procedures by 'less qualified' contracting entities is associated with a
decrease in the average productivity of the firms that are awarded contracts.15
Overall, given these considerations, the short to medium term macroeconomic
impact of an increase in the resources allocated to public investment could be greater
if directed towards projects that are already in progress (if chosen appropriately ex
ante) instead of being used to fund new projects.
From a more structural standpoint, it is crucial that the entire planning,
assessment and monitoring process be rationalized.16 Improvements could result
from a more accurate cost/benefit analysis during the project selection phase.
A greater focus on the quality of planning (envisaged in the new Public Contracts
Code) could, particularly for more complex interventions, make public investment
more effective, despite extending the planning phase. More specifically, this could
speed up the subsequent phases (especially the executive one), helping to stem the
endemic phenomenon of bid renegotiations, which is among the main causes of
time overruns and rising costs.17 It is important to reduce transition times.
There could also be benefits stemming from the appropriate use of the 'e-procurement'
systems envisaged under the new Code which, besides ensuring greater transparency,
would also reduce timeframes. The proper functioning of all of these instruments
depends, however, on there being competent contracting authorities that are able to use
them correctly. This is why it is vital that steps be taken to raise professional standards
in the public sector, starting with the measures to train the contracting authorities
which, more than two years after the new Code has come into force, have yet to be
implemented. Otherwise, potentially virtuous, but more sophisticated, measures may
even have the effect of slowing down less competent administrations. The trend in
tenders for public works contracts over the last two years - characterized by a dip
in 2016 and by a significant recovery in 201718 - has varied according to the type of
contracting authority: specifically, tenders decreased (in number and in value) for
'less qualified' contracting authorities, but rose slightly for the others (Figure 6).
Investment and sustainability of the public debt
The evidence available suggests that Italy's infrastructure endowment is
either inadequate or risks becoming so due to lack of maintenance. At the same
time, it is clear that the interventions required must be accompanied by incisive
improvements in the selection, planning and carrying out of public works: the fact
that Italy's infrastructure lags behind that of the other main economies is not just
due to insufficient financial resources. Given its high debt-to-GDP ratio, Italy must
make the best possible use of its resources; only in this way can a spending boost
be consistent with debt sustainability. Deficit financing should be used with caution.
The dynamics of the debt-to-GDP ratio depend on the primary surplus and
on the difference between the average cost of debt and the economy's growth
rate. When I spoke here last year, I underlined how, with an annual average
growth rate of around 1 per cent, inflation at 2 per cent (in line with the ECB's
objective), and the average cost of debt approaching pre-crisis levels, the gradual
attainment and maintenance of a primary surplus of around 4 per cent of GDP
would enable the debt-to-GDP ratio to be lowered to 100 per cent in the space of
ten years.19 In that same scenario today, solely owing to the increase in the risk
premium on government securities, the reduction of the ratio would be slower
(Figure 7a); leaving the primary surplus at current levels, the debt-to-GDP ratio
would fall slowly for a few years and then stabilize at around 120 per cent, a
still high level that would continue to limit the capacity of the public finances to
have a stabilizing effect during recessions and would leave Italy exposed to the
turbulence of the financial markets.
As I have already mentioned, increasing spending on investment by means of
deficit financing, without addressing growth potential, would only be of temporary
benefit. Reducing the primary surplus by one percentage point of GDP compared with
the current level would lead to a small decrease in the debt-to-GDP ratio thanks to
the expansionary boost to economic activity; however, with no long-term increase in
economic growth, the debt-to-GDP ratio would soon rise again, even if there were no
negative reactions on the financial markets (Figure 7b). The situation would be different
if the resources obtained by means of a larger deficit were used so as to increase growth
potential and if the risk premium on Italian government securities were reduced: with
annual growth of more than one percentage point and with the yields on government
securities returning to the values recorded at the beginning of this year, the debt-to-GDP
ratio would begin to follow a stable, albeit not particularly rapid, downward trajectory.
Above all, we must not underestimate the risks which, given the high level of
public debt, an unproductive increase in the deficit would expose us to. A negative
reaction on the markets - for example a 200 basis point increase in risk premiums,
remaining below the level recorded at the end of 2011 - would trigger a rapid
increase in the debt-to-GDP ratio; considering the negative impact on economic
growth of the increase in interest rates and crisis of confidence, the ratio would
soon be on an unsustainable path (Figure 7c).
* * *
The debt reduction plan that I presented last year was an indicative scenario;
it is possible to draw up prudent strategies, capable of guaranteeing the stability
of the public finances combined with better growth prospects. This is the narrow
path that has been much spoken of in these difficult years.
We can follow this path slowly, one step at a time, by implementing a series of
interventions that gradually produce benefits until all the necessary changes have
been made. Or we can try to make the path wider by setting out a comprehensive
strategy designed to redirect the public finances to more productive uses and to
increase the efficiency of general government, especially in spending programmes
aimed at accumulating both material and immaterial public capital and at supporting
business activity and innovation.
It is in any case essential that the fiscal objectives are and appear to be strongly
and credibly oriented towards financial stability, and that the reforms are effectively
geared towards sustained - and inclusive - economic growth.
TABLES AND FIGURES
Table 1 - Macroeconomic impact of an increase (1% of GDP) in public investment
expenditure financed through deficit spending according to the Bank of Italy's
quarterly econometric model
Years
1 2 3 4 5
A. Baseline scenario
Real GDP (1) 0.9 1.1 1.2 1.2 1.1
GDP Deflator (1) 0.1 0.4 0.8 1.3 1.6
Deficit-to-GDP/ratio (2) 0.7 0.5 0.5 0.5 0.6
Debt-to-GDP ratio (2) -0.5 -0.6 -0.7 -0.7 -0.4
B. Reduced efficiency of investment expenditure
Real GDP (1) 0.5 0.7 0.8 0.8 0.8
GDP Deflator (1) 0.0 0.2 0.5 0.7 1.0
Deficit-to-GDP/ratio (2) 0.8 0.6 0.6 0.6 0.6
Debt-to-GDP ratio (2) 0.1 0.3 0.4 0.6 1.0
C. Increase in borrowing costs (*)
Real GDP (1) 0.9 0.9 0.8 0.8 0.7
GDP Deflator (1) 0.1 0.3 0.7 1.0 1.2
Deficit-to-GDP/ratio (2) 0.8 0.6 0.8 0.9 1.1
Debt-to-GDP ratio (2) -0.4 -0.1 0.3 0.9 2.0
(1) Percentage changes compared with the baseline scenario.
(2) Absolute changes compared with the baseline scenario (percentage points of GDP).
(*) Permanent increase of 10 basis points in the yields on short-term government securities and of 50 basis
points in the yields on medium-term government securities.
Source: F. Busetti, C. Giorgiantonio, G. Ivaldi, S. Mocetti, A. Notarpietro and P. Tommasino, 'Capitale e
investimenti pubblici in Italia: misurazione, effetti macroeconomici, criticità procedurali', Banca d'Italia,
Questioni di Economia e Finanza (Occasional Papers), 2018 (forthcoming).
Table 2 - Macroeconomic impact of an increase in public investment expenditure:
estimates of the main institutions
Multiplier
Short-term Medium-term
IMF (Panel estimates)
Benchmark
0.4 1.4
Higher efficiency
0.8 2.6
Lower efficiency 0.2 0.7
Expansionary cyclical phase
-0.5 0.0
IMF (Global Integrated Monetary and Fiscal model)
Benchmark
2.0 2.5
Higher efficiency
2.2 2.8
Lower efficiency 1.8 2.2
Expansionary cyclical phase
1.0 2.5
0.8-1.2 1.0
OECD
0.5-0.6 1.2
European Commission
ECB
Benchmark
1.6 1.8
Lower efficiency
1.3 1.3
Source: F. Busetti, C. Giorgiantonio, G. Ivaldi, S. Mocetti, A. Notarpietro and P. Tommasino, 'Capitale e
investimenti pubblici in Italia: misurazione, effetti macroeconomici, criticità procedurali', Banca d'Italia,
Questioni di Economia e Finanza (Occasional Papers), 2018 (forthcoming).
Figure 1 - Public expenditure on education
in the main euro-area economies
(percentage points of GDP)
6,0
5,5
5,0
4,5
4,0
3,5
2008 2009 2010 2011 2012 2013 2014 2015 2016
Italy Germany France Spain Euro area
Sources: Eurostat, COFOG database.
Figure 2 - Expenditure on research and development
in the main euro-area economies
(percentage points of GDP; 2016)
4,5
4,0
3,5
3,0
2,5
2,0
1,5
1,0
0,5
0,0
Germany France Italy Spain
Private-sector firms Public sector Universities and research institutions Private-sector non-profit entities
Source: Eurostat.
Figure 3 - General government gross fixed capital formation
in the main euro-area economies
(percentage points of GDP)
6,0
5,0
4,0
3,0
2,0
1,0
0,0
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Italy France Germany Spain
Sources: European Commission, AMECO database.
Figure 4 - Performance of the stock of public-sector capital
in the main euro-area economies
(percentage points of GDP)
80
75
70
65
60
55
50
45
40
2008 2009 2010 2011 2012 2013 2014 2015
Italy Germany France Spain
Source: IMF. The indicator was constructed for 170 countries by applying the
permanent inventory method to the data on public investment expenditure from 1960
to 2015; the depreciation rate of public-sector capital is estimated separately for each
country.
Figure 5 - Transport accessibility index in the main euro-area economies
(EU 27= 100; 2011)
160
140
120
100
80
60
40
20
0
Germany France Italy Spain Euro area
Source: European Spatial Planning Observation Network (ESPON). Share of the EU
population that can be reached within four hours using intermodal travel (air, rail,
motorway). The y-axis shows the value taken by the index compared with that for the
EU 27, which is set equal to 100. The indicator for each country is constructed as the
simple average of the provincial indicators.
Figure 6 - Number of tenders and amounts by type
of contracting authority in Italy
6000 4500
5000 3500
euros
tenders
of
of
4000 2500
Millions
Number 3000 1500
2000 500
2013 2014 2015 2016 2017 2013 2014 2015 2016 2017
Year in which tender was awarded Year in which tender was awarded
Low-quality contracting authorities Low-quality contracting authorities
High-quality contracting authorities High-quality contracting authorities
Source: A. Baltrunaite, C. Giorgiantonio, S. Mocetti and T. Orlando, 'Discretion and
Supplier Selection in Public Procurement', Banca d'Italia, Temi di Discussione (Working
Papers), 1178, 2018.
Baseline scenario
Varenna 2017 scenario
160
Varenna 2017 scenario
with the spread at current levels
140
120
100
80
60
2017 2019 2021 2023 2025 2027 2029 2031 2033 2035 2037
Note: The baseline scenario assumes a primary surplus equal to that forecast for this
year in the 2018 DEF (1.9 per cent of GDP), the spread between Italian and German
government securities remaining at current values (240 basis points for ten-year
bonds), the gradual normalization of monetary policy, and growth potential equal to
1 per cent.
Figure 7b - Performance of the debt-to-GDP ratio under different assumptions
180
Baseline scenario
Baseline scenario with increased investment (Bank of Italy multiplier)
160
Baseline scenario with increased investment (Bank of Italy multiplier),
higher growth potential (2%) and the same spread as in Q1 2018 (150 bps)
140
120
100
140
120
Baseline scenario
100
Baseline scenario with increased investment (lower
multiplier) and a 200 bps increase in the spread
Baseline scenario with increased investment (lower
80
multiplier), a 200 bps increase in the spread and lower
growth potential (0.5%)
60
2017 2019 2021 2023 2025 2027 2029 2031 2033 2035 2037
Note: See Figure 7a.
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