Assessment and Recommendations
In recent years, Italy’s GDP growth has been below the euro-area average, and total factor productivity growth has been very weak, and even negative. The OECD estimates that the potential growth rate of GDP, possibly only temporarily, has fallen below 1½ per cent. Consumer price inflation has been faster than in the euro-area and relative unit labour costs in both the non-traded and traded sectors have been rising steeply.
Economic Performance and Policy Challenges
This chapter discusses recent macroeconomic performance in Italy and its linkages to structural policies. Unemployment dropped markedly as labour deepening occurred in response to labour market reforms. But despite strong employment growth, output growth has been weak because of a sharp drop in total factor productivity growth.
Fiscal Reforms for Credibility and Growth
This chapter investigates the actions being taken by the Italian government to strengthen fiscal sustainability while supporting economic growth via fiscal policy. The key is to reduce structural spending and limit tax evasion, raising the primary surplus to levels targeted in Italy’s Stability Programme, and making room for lower tax rates and enhanced spending on infrastructure and human capital.
Corporate Governance and Market Liberalisation
The functioning of Italy’s financial and product markets has undergone major changes since the 1990s. Households have shifted their savings to the equity and corporate bond markets. However, they have been hurt by a series of bond defaults that have highlighted the urgency of improving bankruptcy procedures, corporate governance and financial market supervision.
The Economic Impact of Migration
Only in the last decade Italy has witnessed significant immigration inflows. Most immigration has been illegal despite legislative changes, leading to quotas, though a series of regularisations has granted many immigrants legal status. Immigrants have probably increased overall prosperity and provisions of the 2002 law for cumbersome recruitment procedures may be questioned, although the effort for simplification through the "sportello unico" (one stop shop) should improve the situation once implemented.
Human Capital and the Labour Market
Italy exhibits a significant human capital gap vis-à-vis the OECD average, encompassing: relatively low rates of completion of secondary and especially tertiary education; disappointing PISA test scores despite high spending at the secondary level; a large brain drain toward the US and UK but very few foreign students in Italy; low spending and organisational problems at Italian universities and research establishments; low numbers of researchers and lagging R&D activity, especially private.
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