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Public finance indicators characterize the economic policy of a country, and are a subject of particular interest in planning the economy of the Euro area. In particular, public expenditure and taxation are the main fiscal policy tools available to the government and represent issues about which the public opinion is particularly sensitive. The state of public finance, as well as the inflation trend, allows a synthetic measure of the economic and monetary stability of a country. Therefore, it is on the basis of this type of indicators that it is possible to evaluate, for example, the growth trends and the degree of adaptation to the stability pact of the member states of the European Union.
The level of net borrowing of General Government as a percentage of GDP represents the reference indicator for budget management, both as a target level and, in the final balance, to evaluate the state of public finance. In the Maastricht agreements, a maximum deficit of 3% was set as a condition for joining the Economic and Monetary Union (EMU). If interest payments are subtracted from net borrowing, the primary balance is obtained which, in relation to GDP, represents another important public finance indicator. The relationship between net lending (+)/ net borrowing (-) and primary balance can be very different between countries depending on the differences in debt burdens. In 2018, the primary balance for Italy stood at 1.5% of GDP, while net borrowing was 2.2%. At the end of 2018, General Government debt, measured gross of liabilities associated with financial interventions in support of the EMU member states, amounted to 2,380,306 million euros (134.8% of GDP). Compared to 2017, the ratio between General Government debt and GDP increased by 0.7 percentage points.
The tax burden is a fundamental element in determining the levels of competitiveness and performance of the economic system. The analysis of the components of the tax burden shows the effects of the variability of the tax policies adopted over the years. Against a general prevalence of direct taxes in the nineties, starting from 2000 there was a reversal of the trend that resulted in a greater relative weight of indirect taxes up to 2006; since 2007, on the other hand, the weight of the direct tax burden on households and enterprises has been growing again. This mainly depends on the dynamics of the distribution of taxation and its revenues between the different subsectors of General Government. Over the years, due to the decentralization of important expenditure functions, there has been a progressive increase in the tax autonomy of local government and in the share of local taxes in the total tax levy, triggered by the attribution of increasing sources of revenue.
Over the last twenty years, in Italy, the overall tax burden has been increasing, starting from 40% of GDP in 2000, reaching a minimum of 39.1% in 2005 and then growing to reach a maximum of 43.4% in 2013. The tax burden was 41.8% of GDP in 2018.
State expenditure allocated by region per capita of the Centre-North is on average higher than that of the South and the Islands. In 2017, the primacy of the highest state expenditure per inhabitant went to Valle d'Aosta, Trentino-Alto Adige / Südtirol and Lazio which exceeded 12 thousand euros, while Campania, Puglia, Veneto and Sicilia were at the bottom of the ranking, with a per capita value around 8 thousand euros.
A severe adjustment of Italian public finance was carried out in the nineties', bringing the deficit below the 3% threshold at the end of the decade, as required for joining the EMU.
The first half of the 2000s was characterized by an increasing net borrowing and decreasing primary balances, to the point that Italy was subjected to the excessive deficit procedure in 2005.
In 2007, Italy committed to achieve the medium-term objective of a balanced budget; it had a deficit of 1.5%, considerably lower than in 1995.
Since the second half of 2009, the year in which no EU country recorded a budget surplus, the rebalancing of public accounts has become a priority of the EU countries, and the Commission has opened the excessive deficit procedure against 17 Member States, including Italy.
In 2018, Italy had a ratio of net borrowing to GDP of 2.2%, while the EU average was 0.7%. In 2018, the ratio between General Government debt and GDP in Italy (134.8%) was among the highest among the EU countries; only that of Greece was higher (181.2%). In Spain (97.6%) and Germany (61.9%) the debt burden fell (by 1 and 3.4 percentage points respectively), while that of France remained unchanged (98.4%). In the average of the 19 Euro area countries, the debt / GDP ratio fell to 85.9%, with a drop of 1.9 percentage points compared to 2017. With regard to all the 28 EU countries, the same indicator was slightly lower (80.4%) and it was also decreasing compared to 2017.
Even though an increasing degree of harmonization and many similarities characterize the tax systems of the EU countries, they also show wide gaps. Tax burdens present a considerable variability: the highest values are found in the Nordic Countries, while most recent EU member states show values significantly below the Union average.
In 2018, the tax burden in Italy was equal to 41.8% of GDP, a value that placed it in sixth place in the decreasing ranking of EU countries.
Italy displays lower levels of General Government expenditure per capita than the other major economies of the EU. In 2018, Italy spent € 14,129 per inhabitant and ranked twelfth in the European descending ranking, preceded by United Kingdom (€ 14,975), Ireland (€ 17,011), Germany (€ 18,003), the Netherlands (€ 18,946) and France (€ 19,703). At the top of the ranking there were Luxembourg with over 41,000 euros per inhabitant, Denmark with around 26,000 euros, Sweden with over 23,000 euros and other Northern European countries. Among the major economies of the Union, only Spain spent less than Italy (10,749 euros per inhabitant). Lastly, almost all the recent EU accession countries had a public expenditure per capita that was much lower than the EU average (14,214 euros).