Fiscal Policies Amid a Pandemic: The Response of Italy to the COVID-19 Crisis

Marco Di Pietro (), Luigi Marattin and Raoul Minetti

National Tax Journal, 2020, vol. 73, issue 3, 927-950

Abstract: This paper investigates qualitatively and quantitatively the fiscal policies adopted in Italy in response to the COVID-19 crisis. We assess the rationale of the policies in light of the characterizing features of the business and household sectors and of the state of public budgets. We then evaluate the impact of the policies through a calibrated model of the Italian economy featuring a comprehensive specification of taxes, transfers, and subsidies. The quantitative analysis suggests that the policies reduced the gross domestic product (GDP) impact of the COVID-19 shock by 25 percent at the peak of the crisis. Alternative fiscal stimulus plans tilted toward a larger reduction of corporate taxes, and stronger increases in public expenditures could have achieved a sharper attenuation of the GDP drop but would have been less desirable from a distributive perspective or for the dynamics of public finances.

Date: 2020
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