Executive Intelligence Review

FROM EIR DAILY ALERT


Italian Economy Minister Pushes Public Investments

June 7, 2018 (EIRNS)—Italian Economy Minister Giovanni Tria, a friend of China, has sent a message that he is in favor of adopting the “Chinese approach” to growth. He has authorized the publication of excerpts from an academic paper of his soon to be published in an international economic review, which makes a strong argument for public investment in infrastructure, financed with deficit spending, which the EU should allow if at the same time conditionalities of “solid fiscal behavior” are implemented.

Even before the financial crisis, public investment was dropping, co-authors Tria and Pasquale Lucio Scandizzo (economist at the University of Rome Tor Vergata) argue in a preview today in Formiche. After 2008 they collapsed: “Fixed investments by public administrations have dropped by some 28% in the Eurozone (19 countries) between 2009 and 2019 (from 3.5% to 2.2% of GDP), with large differences among countries. In Italy the drop has been by almost 40% (from 3.4% to 2.2% of GDP) and in France about 20%.”

The lack of public investment has also produced a drop in investment in the private sector and a reduction in family income.

“Public investments ... act on the productive potential through their effect on the productivity of private capital and therefore on aggregate demand.

“Empirical analyses suggest that this positive effect is particularly strong in the case of public investments in infrastructure and instruction, because the latter increase the stock of human and physical capital and therefore the aggregated productive capacity, with virtuous effects on long-term growth.”

The “old idea” should be resumed

“of treating capital expenses different than current expenses in deficit accounting.... Current expenses should be reduced while capital expenses should be increased, subjected to a planned quality and to rigorous controls, and financed in an independent way with a close connection between immediate expenses and expected results.”

The target of government debt reduction can be more easily achieved

“thanks to the increase of nominal GDP, which is the specific aim of the program. Many technical details of the program, and its conditional demands, can be adequately planned with the participation of the other European governments and institutions.”

Public investments should be increased, aiming at also attracting private investments, and to this purpose, “a temporary increase of the deficit in order to start such programs should be considered as acceptable.”

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