Comparing Solutions: What can Spain learn from 2009 L'Aquila Earthquake
The floods of October 29th have had major natural, social and economic consequences on Eastern Spain. Enraged residents confronted the king, the prime minister and the region’s president in Paiporta, one of the towns with the highest death toll: Being put on the spot, the government now has to think about the next steps carefully. Besides humanitarian aid, what fiscal measures can the government introduce in order to attenuate the economic impact of the flood?
Italy, during its history, has been hit by many natural disasters, and has implemented different policies that could also help Spain. What has Italy done in the past in similar situations and how did those measures help?
One of Italy’s most recent cases was in 2009, when Abruzzo’s capital, L’Aquila, was hit by an earthquake. First of all, the Government temporarily suspended all due payments and taxes of the regional people, following the 429th, 430th and 431st clauses of the Stability Law which state that penalties, interest and additional charges do not apply to the suspension period. Temporary fiscal measures helped not only lower the economic effects of the tragedy, but also to reduce the variation of the permanent income.
Secondly, it applied two measures to ensure help from the other regions: they implemented an excise tax on gas and on other inelastic goods, so that the demand would remain stable, and they advanced expansionary fiscal policies, encouraging investments in the affected areas by lowering interests for people that financed reconstructions. On an IS-LM model, it means that the IS curve moves forward, increasing the GDP.
Lastly, most of the national help came from the Civil Protection, which, since 1995, is financed by the citizens through an excise tax on electric energy. Italy has been largely appreciated for it as it is one of the most effective taxes in Europe.
Italy has also adopted other measures, like the European Union Solidarity Fund (EUSF), which was created in 2002 in order to support the single nations during natural disasters.
Spain can definitely take inspiration from Italy: for instance, their Civil Protection is only funded by the state budget and European funds; moreover, expansionary fiscal policies would both accelerate the rebuilding of the cities and increase the GDP.
What matters is that influential events lead the way to new instruments which ultimately encourage progress; After the criticism received, the Spanish Government has the obligation to keep its nation away from an economic crisis.
Author: Lorenzo Del Chicca