Always on the brink: Piedmont and Italy

After the end of Napoleonic Wars, the Italian peninsula was divided into eight independent states, plus the Kingdom of Lombardy-Venetia, by then formally independent but belonging to the Austrian-Hungarian emperor. All these states but one, the Kingdom of Sardinia (which, in spite of its name, consisted mainly of Piedmont), pursued very conservative, small-state policies, with low taxation and low expenditure. By contrast, since the 1850s, Piedmont had been implementing an ambitious and expensive plan of modernization mostly funded with an increase in its sovereign debt to buttress its political ambitions. The latter were fulfilled in 1861, when Italy was unified for the first time since the fall of the Roman Empire. The king of Sardinia became king of Italy, and the Piedmontese constitution, institutions, and economic policies were extended to the whole new state, with few exceptions and in most cases without any delay. Also, the budget policy of the newborn kingdom featured a strong continuity with the Piedmontese one, at least at the beginning. In its first years, Italy spent lavishly on infrastructures and army, funding itself with imports of capital. Predictably, it soon ran into serious financial troubles. Italy extricated itself with about a decade of harsh fiscal measures and managed to keep its budget more or less balanced from the mid-1870s onward. The revenue-GDP ratio grew until the mid-1890s, and on this ground, Italy would qualify as a fiscal state. After that, however, the situation changed, and this ratio fell until the First World War, as the result of a noticeable slowdown in the rate of growth of revenues and an acceleration of GDP growth (known as the boom giolittiano).