Renata Targetti Lenti

The distribution of personal income at the sectoral level in Italy: A SAM model

Abstract This paper applies a SAM multiplier decomposition to investigate the impact of the structure of consumption demand on the inequality in the distribution of personal income in Italy in 1980. The household sector is divided into socioeconomic groups by income size. The results show a low capacity on the part of the poorest deciles to generate income for the household sector. The decomposition shows that the benefits originating from an intially equal increase in disposable income across population deciles increasingly favor the upper-middle income deciles.

EXTENSIONS TO THE MULTIPLIER DECOMPOSITION APPROACH IN A SAM FRAMEWORK: AN APPLICATION TO VIETNAM

The aim of this paper is to provide an extension of a technique recently introduced by Pyatt and Round (2006) to decompose each element of the ‘global multiplier matrix’ in ‘microscopic detail’ in order to capture the linkages between each household groups’ income and the exogenously injected income of other accounts. The methodology we propose allows dividing the impact of exogenous injections into four different effects: direct-direct effect (D-D); direct-indirect effect (D-I); indirect-direct effect (I-D) and indirect-indirect effect (I-I). Results using the 2000 Vietnamese SAM show that the highest direct effects on the income of household groups are related to exogenous injections into the agricultural sector, while the highest indirect effects result from investing in other agriculture-related sectors such as, for example, food processing. Policy interventions focusing on the agricultural sector and on rural households will thus have the greatest effect on reducing the level of income inequality.

Income Distribution And The Structure Of The Economic System: A SAM Approach

The income distribution is the result of manifold factors of the most different nature, related to micro and macro-economic, real and monetary variables. Among these causal factors the functional income distribution which corresponds to a given productive structure may be considered as the most important x. As the researchers became increasingly aware of these links they started to build up models that explicitly contain the relationships between the distributive variables and the variables expressing the structural features of the economic system. Many of these models, despite their different specification, are based on a common approach which derives, and may be considered as an extension, of the traditional Input-Output framework. The process of income generation, distribution and expenditure of institutions’ disposable income (households, enterprises and Government) is considered as a closed-loop process. Interrelationships between these three stages are specified at a rather disaggregated level by determining a Social Accounting Matrix (SAM).

The Italian Economy 1961–2010: From Economic “Miracle” to Decline

Long-term trends suggest that Italy’s current economic crisis is not the result of an unfavourable business cycle or of the recent global economic and financial crisis. Instead, Italy’s crisis accompanied by persistent slow economic growth is the result of decade-long structural shortcomings and inefficiencies. Many factors explain why and how Italy experienced sluggish economic growth and increasingly uncompetitive productivity over decades. The causes of Italy’s economic crisis, this author argues, are deeply rooted in the past and closely interconnected. This chapter discusses and analyses these causes from a historical perspective. Export-led growth in the 1950s and 1960s favoured the consolidation of a productive system centred on small and medium-sized manufacturing firms, many of which are located in Italy’s northern regions (Veneto, Lombardo and Piedmont). Such firms needed low labour costs, cheap natural resources and energy to survive in an increasingly competitive international setting. Social cohesion and strong domestic consumption, in a setting of relatively low wages, was supported and indeed guaranteed by generous public expenditures. After the oil crisis of the 1970s up until the beginning of the 1990s, Italy was able to remain internationally competitive through the regular devaluation of the Italian lira. At the end of the 1980s, the converging path towards other European countries stopped. The burden of a rising public debt, the distorted composition of public expenditure, the decline of the country’s manufacturing sector industry and insufficient investments into research and development had a negative and lasting impact on the country’s competitiveness. But also failures coming from the institutional and political setting and a ruling class above all oriented at short-term profits instead of long-term commitments and benefits, contributed to what is referred to as the ‘years of lost opportunities’ in the 1990s and beyond. In order to stop Italy’s economic decline, this author argues that not only effective monetary and fiscal policies, but also and indeed above all structural reforms, administrative and industrial policies are needed. Reducing the different kind of dualism is imperative to promote investments in research, infrastructure and human capital and to decrease the high dependence on energy imports, reduce the country’s high youth unemployment rate and tackle rising inequality and poverty.