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The Political Economy of Italy's Decline$
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Andrea Lorenzo Capussela

Print publication date: 2018

Print ISBN-13: 9780198796992

Published to Oxford Scholarship Online: May 2018

DOI: 10.1093/oso/9780198796992.001.0001

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Continuity and Instability: The Spiral Sets In

Continuity and Instability: The Spiral Sets In

(p.143) 8 Continuity and Instability: The Spiral Sets In
The Political Economy of Italy's Decline

Andrea Lorenzo Capussela

Oxford University Press

This chapter reviews the 1964–79 period, during which the social tensions accumulated over the previous decades erupted, a wave of political violence without parallel in Europe shook the country, and the steep rise of labour’s bargaining power caused a persistent wage shock. Political consensus was sustained by spending policies aimed at particularistic inclusion, leading to both a fragmented welfare system and growing budget deficits, which were largely monetized. Driven also by a challenging international environment, macroeconomic disequilibria accumulated. Although the country’s institutions were increasingly inappropriate, TFP growth and Italy’s convergence to the productivity frontier nonetheless continued, sustained also by the rise of industrial districts. Several mutually reinforcing vicious circles set in, however: the collusion between political and economic elites intensified, clientelism and corruption rose, organized crime strengthened, and after two decades of convergence the South resumed its decline relative to the rest of the country.

Keywords:   Italy, political economy, social order, institutions, convergence, TFP, vicious circles, social tension, terrorism, particularistic inclusion

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