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2002 OECD Economic Surveys: Italy 2002

image of OECD Economic Surveys: Italy 2002

This 2002 edition of OECD's periodic review of Italy's economy examines recent economic developments, policies and prospects and includes special features on reducing debt and the tax burden, making public spending more effective and on reforms to raise growth potential.

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Fiscal Policy

Reducing Debt and the Tax Burden

The 2000 budget deficit was the lowest for over thirty years, at 1.5 per cent of GDP, benefiting from the favourable trend in interest rates and better than expected revenue growth. Taking into account the "una-tantum" proceeds of the sale of mobile phone licences, the deficit was even significantly smaller than that, at 0.3 per cent of GDP (Figure 10). Over the five years to 1997, the consolidation process (by which the general government structural deficit was reduced by 7 percentage points of GDP) was materially assisted by tax increases (especially in 1992 and 1997) and reductions in transfers, subsidies and public investment spending, while substantially helped by interest rate declines. But progress towards budget balance – the objective for 2003 – could prove difficult to maintain. Since joining EMU, Italy has been able to exploit continued favourable movements in interest rates, but that leeway is now much reduced. More critically, the increase in effective tax rates involved in meeting the Maastricht criteria moved Italy above the average fiscal pressure ratio of EU countries and this has placed tax reform, and reduction, at the top of the agenda (Figure 10).

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