The intention for the Italian government to stimulate business activity via large increases in government spending is not in line with the stabilisation of the public debt ratio. Instead, if such policy were implemented, the risk of a sovereign debt crisis would be high. In this article, we analyse the capacity of the Italian economy to shoulder sovereign debt under different scenarios. We conclude that focusing on growth enhancing structural reforms, would allow for moderate increases in public expenditure.

Authors and Affiliations

1. Department Macroeconomics, Halle Institute for Economic Research, Kleine Märkerstraße 8, 06108, Halle (Saale), Germany

   Oliver Holtemöller

2. Volkswirtschaftslehre, Hochschule Fulda, Leipziger Straße 123, 36037, Fulda, Germany

   Tobias Knedlik

3. Department Macroeconomics, Halle Institute for Economic Research, Kleine Märkerstraße 8, 06108, Halle (Saale), Germany

   Axel Lindner

Corresponding author

Correspondence toOliver Holtemöller.

Oliver Holtemöller, Martin Luther University Halle-Wittenberg; and Halle Institute for Economic Research (IWH), Germany.

Tobias Knedlik, Fulda University of Applied Sciences; and Halle Institute for Economic Research (IWH), Germany.

Axel Lindner, Halle Institute for Economic Research (IWH), Germany.

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