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Maintaining fiscal sustainability: Structural fiscal issues

Major progress has been made in moving towards fiscal sustainability, thanks to substantial consolidation on both spending and revenue sides. Further structural improvements can build on these gains and, more fundamentally, support the government’s reform programme aimed at improving productivity and growth. Tax compliance is more expensive for companies in Italy than in most OECD countries, while tax expenditures are very numerous. Simplifying the tax system can raise investment and growth, as well reducing costs in the tax agency and improving compliance. Value for money in public spending is always important but particularly so in a situation of tight budgets. Ad hoc spending reviews have been undertaken, but a systematic approach is needed. Some existing tools to promote value for money can be improved, while reform of public administration, including better use of transparency and anti-corruption measures, can support their effective use. The Internal Stability Pact (ISP) has been a necessary domestic counterpart of European fiscal rules, but has imposed a number of constraints on sub-national administration that go beyond what is needed for EU purposes. Constitutional reforms, balanced budget rules for sub-national administrations and final implementation of long-awaited rules on fiscal federalism provide an opportunity to considerably simplify or eliminate the ISP.

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