Fiscal Policy And Economic Growth: The Case of the Italian Regions

A relevant question dominates discussions of recent economic policy: assuming that economic growth is desirable for its own sake, what can be done to increase the average rate of economic growth? The aim of this paper is to asses the relationship between government spending, and economic growth. Though an endogenous growth model the influence of public investment and public transfers on the rate of economic growth is tested for the case of the Italian regions. The theoretical implications of the model are tested with data from the 20 Italian regions between 1970 and 1995, and panel data results support the proposed influence of the public finance variables on economic growth. However we found that, specifically in the case of Italy, public transfer payments do not always enter as productive inputs in private production functions. Transfers are unproductive in that they do not raise the marginal product of private capital, especially when the analysis is restricted to the central southern Italian regions, where we believe, government transfers are used as redistributive devices.