Effects of fiscal policy in the North and South of Italy

Abstract: This paper contributes to a growing body of work within ‘fiscal policy studies’, investigating for the recent role of fiscal policy on the Italian economy. Using annual data collected on regional basis, this study estimates and compares the (impact and cumulative) fiscal multipliers across the North and the South, the less developed area, of Italy. With recourse to a simultaneous equation model for the two macro-regions of Italy, it estimates the overall impact of the measures of budget consolidation policies in the period 2011-2013. Our analysis reveals that tax rises and spending cuts hit the South harder than the North.