Budget Balance in the 2012 Constitutional Reform
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The Italian Constitution was amended seven years ago to set two new constitutional principles: budget balance and public debt sustainability. The first rule allows for a budget deficit and countercyclical budget policies when the economy suffers cyclical downswings, and in other exceptional economic conditions to be defined by special legislation. The new Constitution restricts debt financing options, excluding deficit spending as a tool to foster long term dynamics of aggregate demand. The reform has not provided automatic mechanisms to prevent violation of the principles; it also seems that the Constitutional Court will have limited power to defend them. A balanced budget will thus suffer the destiny of other relevant constitutional principles, such as the progressivity of the tax system, the fiscal autonomy of regional and local governments, equal levels of protection in the supply of public services. The application of liberal or social ethics in public policy still lacks political defenders.
keywordsEU fiscal rules, Balanced budget, Potential output.
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