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2019 OECD Economic Surveys: Italy 2019

image of OECD Economic Surveys: Italy 2019

In recent years Italy achieved a modest recovery, supported by global economic conditions, expansionary monetary policy and structural reforms. However, the recovery has recently weakened and Italy continues to suffer from long-standing social and economic problems. Living standards are roughly the same as in 2000 and poverty rates for young people remain high. Large regional disparities have widened over recent decades. A comprehensive reform package, raising productivity and employment growth, holds the key to stronger growth and social inclusion. In-work benefits and a moderate guaranteed income scheme would boost employment and reduce poverty, if supported by improved job-search and training programmes. Rationalising and improving coordination among bodies involved in regional development policies and strengthening capacity at the level of local administrations would help to boost growth and social inclusion in lagging regions.

SPECIAL FEATURE: TACKLING ITALY’S SOCIAL AND REGIONAL DIVIDE

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Tackling Italy’s social and regional divide

Disparities in income and well-being in Italy are large, and follow regional lines more closely than in most OECD countries. Differences in employment rates, especially among women, explain much of regional disparities, while differences in labour productivity play a smaller but not negligible role.These problems, long-standing and deep-rooted, are partly attributable to tax and benefit policies and labour market institutions, which discourage employment, especially of second earners in regions where wages and productivity are lower. The labour income tax wedge is high, curbing job creation, especially of low income jobs. At the same time, benefit policies offer little protection against poverty and labour market risks for many people. To redress this, the guaranteed minimum income scheme implemented in 2017 and 2018 and strengthened in 2019 through the Citizen’s Income is an important and welcome step. However, the success of this initiative will hinge on greatly enhancing job-search and training policies along with other social inclusion services. Fiscally sustainable reforms to tax and benefit policies should aim at maintaining progressivity, better supporting poor households, and encouraging labour force participation especially of low income workers, thus benefitting lagging regions.Ineffective regional development policies and low efficiency of local public administrations in poorer regions contribute to regional disparities. Rationalising and improving coordination among the different bodies involved in regional development would make regional development policies more effective. Funds for regional development policies need to add to and not to substitute for those of ordinary administration. More effective regional development policies need to be flanked by initiatives aiming at raising the effectiveness of poorer performing local public administrations, thus enhancing the local provision of public goods and services, and better supporting disadvantaged households.

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