The macroeconomic effects of structural reforms: an empirical and model-based approach

Abstract

This paper quantifies the macroeconomic effects of three major structural reforms (i.e., service sector liberalizations, incentives to innovation and civil justice reforms) undertaken in Italy in the last decade. We employ a novel approach that estimates the impact of each reform on total factor productivity (TFP) and markups in an empirical micro setting and uses these estimates in a dynamic general equilibrium model to simulate the macroeconomic effects of the reforms. Microeconometric estimates indicate that the reforms imply a sizeable increase in TFP and a reduction in service markup. Structural model–based analysis shows that, accounting for estimation uncertainty, the increase in the level of GDP at the end of the current decade is between 3.5% and 8%, with non-negligible effects on the labor market.

A Hodrick-Prescott filter with automatically selected jumps

“…Among the Western countries, Italy was one of the most deeply involved in implementing structural reforms that impacted the whole economy, particularly the national labour markets and fostered socio-economic changes. Between 2011 and 2017, some of the most relevant reforms concerned the liberalization of services, incentives for business innovation, and a new structure of the civil justice system to improve court efficiency (Ciapanna et al, 2020). The labour market has received considerable national and supranational political attention, resulting in more than twenty legislative interventions since the Nineties.…”