A Comparative Test of Alternative Theories of the Determinants of Italian Public Deficits (1950-1998).

The paper assesses the relative explanatory power of the Keynesian, the optimal finance, the contingent liability and several public choice theories of the determinants of public deficits on Italian 1950-1998 data. A vector error correction model suggests that deficits are sensitive to unemployment levels, interest groups' preferences (especially the elderly), government fragmentation, changes in the degree of stringency of budget rules and external economic constraints. Data instead provide a weak or no support to the hypotheses that deficits respond to output growth and electoral events. The implications of the optimal finance and of the contingent liability theory are rejected as well. Copyright 2002 by Kluwer Academic Publishers