Abstract

In Italy unemployment ranges from less than 3 per cent in some provinces of the north-east, to more than 30 per cent in the south. The main cause of this difference is a lack of competitiveness of tradable production in Southern Italy (deficit in external trade of about thirteen per cent of GDP) compensated by an excess of competitiveness in Northern Italy (surplus in external trade of about 5 per cent of GDP). Current transfers from Northern to Southern Italy, in so far as they are mainly used to subsidize the production of public services in the south, seem to exacerbate the lack of competitiveness of tradable production, and hence unemployment, in Southern Italy; this because these subsidies allow real wages in the public sector to be much higher than those that can be earned in the tradable sectors. The European Commission, rather than to oppose fiscal benefits for southern production of tradable goods, should press the Italian government to shift subsidies from the production of public services to that of tradable goods in the south.