Well, the Thursday, February 22, 1996 episode has put this question to rest. George's father, Frank Costanza, immigrated to the United States from the Tuscany region of Italy. Thus, George is at the very least of half Italian ancestry.
Now then, some of you are going to protest: Yes, but there are Jews in Italy (Sephardic Jews) and Frank Costanza could be a Sephardic Jew from Italy. Plausible, but highly unlikely. First, most Sepahrdic Jews in the United States came to this country in previous centuries, not the last two-thirds of the twentieth century. Second, let us imagine that Frank Costanza *is* a Sephardic Jew and left Italy fleeing from the Nazis. In that case, most Italian Sephardic Jews went to Israel, not the United States. Third, recall that Frank Costanza left behind relatives in Italy when he emigrated to the United States. If the Costanza family was Jewish, it is more likely that the *entire* family fled Italy to escape the Nazi Holocaust.
Instead of these fanciful scenarios, why don't we just take the February 22 episode at its face value: George Costanza is the son of an Italian immigrant. George's ethnicity (at least on his father's side) is Italian. Case closed.