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Why it is difficult to cut public expenditure
With reference to the situation in Italy, this paper looks at some of the problems that the level of public expenditure entails and the difficulties involved in reducing it. Analysis of trends in public expenditure in Italy, and, especially, its elasticity to income, is used to demonstrate how, behind the declared objectives of policy-makers, other 'concealed' objectives should be sought; the objectives that actually motivate spending policies. Politicians see them essentially as being tied to electoral consensus whereas, for bureaucrats, they involve increased decision-making power. In both cases, there is a consequent expansion of the public budget and this new expenditure tends to finance itself not by reducing the old but by increasing the public deficit. In view of the inertial drag effects that influence the drawing up of public budgets, the conclusion is that attemps to cut expenditure will be unsuccessful unless they are accompanied by new constraints on the power of policy-makers; constraints likely to create some form of fiscal constitutionalism.