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This paper attempts an interpretation of Italy’s recent economic decline, which began two decades before the Great Recession. It argues that its deeper roots lie in the political economy of growth. This interpretation is illustrated through a discussion of Italy’s recent growth trajectory and of its politico-economic equilibrium. The emphasis is placed on the country’s convergence to the productivity frontier and TFP performance, and on the evolution of its social order and institutions. The lens through which this case is reviewed, to illuminate the origins and evolution of the current constraints to growth, is drawn from institutional economics and Schumpeterian growth theory. It is exemplified by analysing two alternative reactions to the insufficient provision of public goods: an opportunistic one—employing tax evasion, corruption, or clientelism as means to appropriate private goods—and one based on enforcing political accountability. From the perspective of ordinary citizens and firms such social dilemmas can typically be modelled as coordination games, which have multiple equilibria. Self-interested rationality can thus lead to a spiral, in which several mutually reinforcing vicious circles lead society onto an inefficient equilibrium characterized by low political accountability and weak rule of law.