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Interest payment on government debt and public spending in Italy: An empirical analysis

Cellini, Roberto and Prezzavento, Luca C (2016): Interest payment on government debt and public spending in Italy: An empirical analysis.

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Abstract

This article investigates how the public expenditure structure, and the expenditures in specific fields of the public sector, are affected by the dynamics of interest payment on public debt, in the case of Italy. Italy has the third largest public debt in the world, and interest payments are of considerable size; though not steadily, however, their dynamics has been decreasing over the last two decades. This could have represented an opportunity for restructuring public expenditure. However, our results show that there is no effect of the dynamics of interest payments upon the dynamics of primary public expenditure. The result is based on the analysis of both Granger-causality links and simultaneous relations between interest payments and primary public expenditure. Public expenditure is considered in aggregate terms in current and capital account, and as articulated in a number of specific areas.

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