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OECD Economic Surveys: Italy 2007

image of OECD Economic Surveys: Italy 2007

This edition of OECD's periodic review of Italy's economy finds a welcome economic recovery under way with improvements in export and labour market performance.  But medium-term prospects remain challenging: total factor productivity shows little signs of resurgence, high public indebtedness threatens fiscal sustainability and population ageing looms large.  Without further reforms to restore economic dynamism, living standards will be dragged down relative to other countries.  This survey discusses policies undertaken by the government to address these challenges, notably to boost competition in public markets, achieve fiscal sustainability, and make fiscal federation work - all in support of growth and adjustment.

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Enhancing competition and productivity in services

Italy has experienced a marked slowdown in productivity growth since the mid- 1990s. While it is not entirely clear what caused this slowdown, it is likely that insufficient product market competition played a key role. Hence, the two recent waves of liberalisation are welcome. These reforms are not only likely to reduce entry barriers and rents in a number of services sectors, but could also positively impact on other industries. Yet there is still scope to strengthen market forces. For instance, implementing new competition bodies at local levels, driven primarily to protect consumers’ interest, could be a key factor to stimulate the retail and wholesale trade sector and improve transparency in local public utilities. As well, Italy needs more competition in the financial sector so as to spur innovation and productivity; in this respect, recent reforms in the banking industry appear promising.

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