Italy's Superbonus 110%: messing up with demand stimulus and the need to reinvent fiscal policy

Codogno, Lorenzo (2024) Italy's Superbonus 110%: messing up with demand stimulus and the need to reinvent fiscal policy. . Hans-Böckler-Stiftung. Institut für Makroökonomie und Konjunkturforschung.

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Abstract

Since the Global Financial Crisis in 2008-2009, there has been flourishing literature on the role of fiscal policy in stimulating demand when the economy is in a deep recession. Past studies suggest the stimulus may make sense if it is temporary, targeted, and withdrawn quickly. However, since the pandemic, there has been a case for going big, when necessary, to prop up expectation, confidence and demand. This was exemplified by Italy's Superbonus 110%, a generous subsidy scheme to allow the energy-efficient renovation of residential buildings, which emerged as a significant policy response to the economic challenges posed by the pandemic. I argue that the Superbonus, while having a respectable economic aim, ended up impinging on the same sectors supported by the EU-funded investment plan, resulting in significant capacity constraints and misallocation of resources. Its excessive generosity brought a massive deterioration in public finances, while its returns in terms of economic growth were short of expectations. I conclude by drawing some policy lessons from Italy's experience, on what should be preserved and avoided, and on a possible reinvented role for fiscal policy in deep economic crisis.

Item Type:	Monograph (Working Paper)
Additional Information:	© 2024 The Author
Divisions:	European Institute
Subjects:	H Social Sciences > HJ Public Finance H Social Sciences > HD Industries. Land use. Labor
JEL classification:	E - Macroeconomics and Monetary Economics > E6 - Macroeconomic Policy Formation, Macroeconomic Aspects of Public Finance, Macroeconomic Policy, and General Outlook > E61 - Policy Objectives; Policy Designs and Consistency; Policy Coordination H - Public Economics > H6 - National Budget, Deficit, and Debt > H60 - General H - Public Economics > H1 - Structure and Scope of Government > H10 - General
Date Deposited:	12 Jul 2024 15:21
Last Modified:	11 Dec 2024 19:54
URI:	http://eprints.lse.ac.uk/id/eprint/124239

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