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PKSG Working Paper Series

Working Paper PKWP1606

The Italian economic decline in a Kaldorian theoretical perspective

March 2016

Guglielmo Forges Davanzati, Rosario Patalano, Guido Traficante

This paper analyses the Italian economic decline in a Kaldorian theoretical framework. On the theoretical ground we propose an interpretation of the Italian economic decline based on the continuous decline of domestic demand and the constant reduction of the rate of growth of labour productivity. This interpretation is consistent with the concept of decline, which involves a long-run perspective. We also consider the role of the banking sector as a factor driving aggregate demand and, in turn, labour productivity. We estimate a VAR for the period 2002-2015 to analyse jointly the evolution of public consumption, real GDP, private investments, credit supply, labour compensation and productivity. Our main empirical finding is that aggregate demand and credit supply significantly affect the path of labour productivity, consistently with Kaldor's second law.

Keywords: Kaldor, Italy, aggregate demand, labour productivity

JEL classification: B52: Current Heterodox Approaches: Institutional; Evolutionary E12: General Aggregative Models: Keynes; Keynesian; Post-Keynesian E60: Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook: General

Download: Working Paper PKWP1606