Structural reforms and the potential effects on the Italian economy

Abstract

Since the second half of 2011, after a period of prolonged low growth, Italy has found itself at the center of a severe economic crisis. Concerns about the sustainability of its debt burden, along with gloomy growth prospects, have pushed up the cost of government borrowing, exacerbating current economic conditions. At the moment Italy is facing two mounting economic challenges: (i) achieve a rapid fiscal consolidation to restore financial market confidence; (ii) implement structural reforms to strengthen medium-term growth prospects. Using the European Commission's model QUEST III with R&D, adapted to Italy, we quantify the potential effects of a set of interventions inspired to the reform packages currently being undertaken or under discussion and consider different levels of policy effort. Results show that reforms are likely to bring about sizable gains in output, consumption, employment and net foreign assets position and that most of these gains derive from labor market reforms. However, the fiscal austerity plan is likely to severely mitigate the positive effects of the interventions, especially during the earlier phases of the reform process. Most of these losses accrue to liquidity-constraint households who would experience a drop in consumption

Structural Reforms and the Potential Effects on the Italian Economy

“…3 Forni, Gerali, and Pisani (2010a) study the effects of increasing competition in the services sector in Italy, employing a two-region currency union DGE model. In an early version of this paper, Annicchiarico, Di Dio, and Felici, (2011) quantify the economic impact of several reforms in the spirit of the Europe 2020 strategy. largest implicit tax rate on labor (in 2008 42.8% against 36.5% for EU 27).…”

The Impact of Fiscal Policies on the Socioeconomic Determinants of Health

“…Austerity measures were expected to maintain the “state of confidence” by some, 35 while others expressed concerns that they were likely to severely mitigate the otherwise positive effects of structural reforms on employment, especially during the earlier phases of the reform process. 20…”

Exploring Italy's Growth Challenge: A Model-Based Exercise

“…They find positive policy spillovers: implementing product and labour market reforms together would increase GDP in the long term by 10.5%. Annichiarico et al (2013) find that a package of liberalisation and simplification measures, tax shift and labour market reforms that close Italy's gap vis-à-vis the EU by respectively by 1/3, 1/2 or entirely could increase GDP by respectively around 4%, 6% and 10% over 10 years. use structural indicators in various policy areas (products market, labour market, R&D, human capital and taxation) to simulate the impact of reforms that close EU member state gap vis-à-vis the average of three best EU performers.…”

“…Some previous model simulations report higher impact. In particular, Lusinyan and Muir (2013) find that product market reforms that would close only half the gap from the euro area average would increase GDP by 8.3% in the long run and Annichiarico et al (2013) find that closing the gap from the EU average would increase GDP by 4.3pp over 10 years). This is primarily due to the fact that previous estimate of mark-ups in the service sector were higher than our estimates which are based on a more recent period (see Section 2.3).…”