Public Debt and Demography. An Analysis of the Italian Case Daniele Schilirò Department of Economics University of Messina dschiliro@unime.it Abstract This paper focuses on the challenges posed by high public debt and demographic decline in Italy. The interplay between these two factors threatens debt sustainability and hinders economic growth. A large debt stock constrains economic policy choices and limits national sovereignty. Meanwhile, population decline affects public spending and tends to exacerbate public debt, further complicating its sustainability. Possible policy options to counterbalance this issue include immigration, increasing labor force participation, pension reforms, fiscal consolidation, and investment in education targeted at the young population. Keywords: public debt, demography, declining population, sustainable debt, growth, immigration 1. INTRODUCTION Italy has long struggled with high public debt, widespread tax evasion, and a declining birth rate. These three critical issues are key to the country's future. This paper focuses on the high public debt and demographic challenges that hinder growth. In 'Public Debt and Growth in Italy: Analysis and Policy Proposals' (Schilirò, 2019), the author highlighted that high public debt restrains Italy's growth prospects. More recently, in a speech at a convention in Rimini in August 2024, the Governor of the Bank of Italy emphasized that public debt in Italy is too high and must be reduced, as it jeopardizes the future of younger generations. In fact, Italy is the only country in the euro area where public spending on interest payments is almost equivalent to spending on education, a figure that underscores how 'the high debt is weighing on the future of young generations, limiting their opportunities.' High public debt in Italy has persisted for many years, not only limiting growth but also raising concerns about its sustainability among economists and economic operators. The Italian budget, approximately 1,200 billion euros per year (including loan repayments), weighs on the stock of public debt, which amounts to nearly 3,000 billion in 2024 and has accumulated primarily over the last half-century. In 1970, Italy's debt-to-GDP ratio was actually 44%. Since then, it has steadily increased, eventually reaching 154.9% in 2020, exacerbated by the effects of the Covid pandemic. The impact of Covid-19 has indeed been significant. The pandemic brought severe economic consequences to the country, including a collapse in output, GDP, and employment, as well as a substantial increase in public debt. Several studies (e.g., Bénassy-Quéré and Weder di Mauro 2020; Codogno and Corsetti 2020) conducted shortly after the Covid crisis suggested that the debt-to-GDP ratio in Italy and other EU countries was on a sustainable and declining trajectory in the medium term. This outlook was partly due to the ECB's monetary policy, which played a crucial role in addressing the crisis and stabilizing financial markets through asset purchases. Nevertheless, such a high debt stock strongly influences economic policy choices, creating a bottleneck that reduces the government's room for maneuver, increases the weight of past decisions on future ones, limits sovereignty, and forces policy continuity. This situation has two major consequences. First, there is a reversal of roles: the State no longer controls the economy; instead, the economy controls the State, resulting in a loss of sovereignty. Second, the budget, which is meant to be a forecast for the future, becomes conditioned by the past, ultimately shaping both the present and the future. A second factor contributing to the high public debt is demography. Demographic changes are a long-term variable. The Italian population is aging faster than that of other countries, which will inevitably affect public spending in the coming years, leading to a gradual increase primarily in pension and healthcare costs. This will negatively impact the risk parameters of national accounts. Additionally, population aging will inevitably affect economic growth and, consequently, the sustainability of public debt. Therefore, public debt and demography are deeply intertwined, influencing each other in various ways, especially as population dynamics—such as aging, fertility rates, and migration patterns—shape a country's fiscal policy and the sustainability of its debt. The following section provides a brief historical summary of Italian debt. Section 3 will examine the relationship between Italian public debt, its sustainability, and GDP growth. Section 4 analyzes the demographic situation in Italy. The paper will conclude with a discussion and conclusions. Daniele Schiliro | International Journal of Business Management and Economic Research(IJBMER), Vol 15(3),2024, 2414- 2419 2414 ISSN:2229- 6247