Italy has the third largest public debt of the World in absolute terms and the eighth
when it is GDP weighted. In addition, Italy presents the largest and most persistent
development gap among its regional economies in the group of the advanced
countries.
Is there a link between these two facts? We present evidence in favor of a
relationship between these two empirical facts by reconstructing the entire
dynamics of national public deficit as a weighted sum of four macro regional deficits
(Northeast, Northwest, Centre and South) . We show that the ultimate cause of the
accumulation of public debt in Italy lies in the extraordinary fiscal imbalance of the
Southern regions.
We then focus on the determinants of the regional public deficits and their
persistence. Thanks to the reconstruction of the regional deficit time series we are
able to test empirically many of the several theoretical approaches suggested in the
literature, including the geographically dispersed interest approach not yet
considered for the Italian case. This approach turns out to be one of the best
candidates to account for the size and persistence of Southern regional deficits.
The whole evidence suggests the existence of a pork barrel mechanism coupled
with a complex geo-political equilibrium that has allowed the Southern regions of
Italy to generate deficits so large and persistent that they hoard the entire Italian
National debt.
