On Monday, September 2nd, Italian Prime Minister Giorgia Meloni bragged that her government has made a substantial difference for the Italian economy.
Her boasting made me curious. Unfortunately, my curiosity did not yield results that Ms. Meloni would be happy to hear.
Let us start with her own Instagram post:
Italy is growing more than other European nations, despite the slowdown in the world economy and the delicate international situation. … Just in these days comes the [Italian statistics agency] Istat data of the lowest unemployment rate since 2008: 6.5%. The serious choices we have made, together with the centrality and authority demonstrated at the international level, are contributing to the good performance of our economy.
It would have been nice to confirm that Prime Minister Meloni is correct. Unfortunately, the numbers do not add up to her advantage. To begin with, Figure 1 reports the year-to-year growth rates in real (inflation-adjusted) GDP in all 27 EU member states in the first quarter of this year. While the GDP in 9 member states declined (red columns), the remaining 19 had a growing GDP—but Italy is not in the lead. The Italian GDP is represented by the black column:
Figure 1
With 16 countries having a stronger GDP growth than Italy, it is hardly accurate to claim that “Italy is growing more than other European nations.”
But what about the unemployment rate? Is it—or is it not—the lowest it has been since 2008? On this point, as Figure 2 reports it looks like the Italian premier is correct: in August 2008 the Italian unemployment rate was 5.7%, compared to 5.8% in July this year.
However, the story about the unemployment rate does not end there. According to the Instagram quote above, Prime Minister Meloni takes credit for the drop in unemployment, but as Figure 2 shows, comparing Italian unemployment (blue) to the EU-27 average (red), there is nothing unique about the Italian rate:
Figure 2
Simply put, there is no ‘Meloni effect’ in the unemployment numbers.
That did not stop the prime minister from continuing to boost her government’s achievements. According to il Giornale, Meloni tied the drop in unemployment to a more restrictive policy regarding social welfare benefits. She did not mince words when targeting some of the reckless entitlement spending under previous governments:
“The season of money thrown out of the window and bonuses is over and will not return so long as we are in government. All available resources must continue to be concentrated in supporting companies that hire and create jobs and to strengthen the purchasing power of families and workers,” the Prime Minister explained, with veiled critical reference to certain disastrous welfare policies of the past.
There is nothing wrong with restricting access to welfare-state entitlements; a traditionally conservative welfare state would provide only basic benefits, yet under dignified conditions. There are substantial economic benefits from reforming the welfare state in this direction, including a long-term rise in workforce participation.
However, those benefits would not show up in a year or two—even if Italy under Meloni had gone far enough to meet the conservative criteria. Therefore, it is simply incorrect of the Italian prime minister to tie a moderate tightening of welfare-state benefits to the drop in unemployment.
There is more. Back to il Giornale:
Recently, to verify the positive trend for the country were also the economic data of the first quarter of 2024, which had confirmed a growth of 3.4% in the real income of Italian households.
It is not entirely easy to fact-check this statement, as there are a multitude of different numbers that can qualify as household income. However, if we go to the one that most closely meets the statistical definition of the term, we end up in the “earnings” subset of Eurostat’s labor market database. There, we find numbers on household income under more than a dozen different configurable criteria. For a quick check on the trend in Italian household income, it is reasonable to look at a family of four, with two children and two working parents who make average incomes.
Figure 3 reports how the household income of this statistical family has evolved since 2014. An index with the year 2014 set to 100 shows how their income has changed through 2023; for good measure, I compared the gross income (blue) to the same household’s income after taxes (red). The result is quite interesting:
Figure 3
The quote from il Giornale above refers to inflation-adjusted income in the first quarter of 2024. Eurostat has not yet published such income—this is a type of statistical information that takes quite a bit of time to produce. Whatever sources the Istat report behind il Giornale’s article has used, I am sure they are good. At the same time, Figure 3 makes a point that the Italian news outlet ignores, namely that it does not matter how much household income grows, before or after adjustment for inflation (the estimates in Figure 3 are not inflation-adjusted), if the increase is neutralized by rising taxes.
Which, as it happens, is exactly what we see in Figure 3. Here are the underlying numbers that show how taxes have eaten away at household income:
- In 2020, the pre-tax household income of our statistical family (two working parents, two kids) was €64,432. On this income, they paid €11,906 in taxes, which amounts to a tax rate of 18.5%.
- In 2021, the pre-tax income fell to €64,040 but, thanks to a bigger drop in taxes, the tax burden fell to 16.5%.
- In 2022, pre-tax income rose to €64,382. Out of this, the household had to pay €12,212 in taxes, raising the tax burden to 19%.
- In 2023, this household had to pay €14,790 in taxes on a pre-tax income of €66,985. This comes out to a tax burden of 22.1%.
The increase in taxes was so sharp that household income after taxes fell from €53,467 in 2021 to €52,194 in 2023. In nominal euros, the taxes for this family increased from €10,573 in 2021 to €14,790 in 2023. This happened thanks to a 15.5% jump in 2022 and another 21.1% in 2023.
Giorgia Meloni became prime minister in October 2022. It is unfair to make her responsible for the higher taxes reported here—just as it is unfair of her to take credit for any of the positive economic numbers that she claims as her achievements.
Especially since those numbers do not check out.
