Italy

   

Economic Policies

#40
Key Findings
With two successive governments pursuing different policies during the period, Italy falls into the bottom ranks (rank 40) with regard to economic policies. Its score on this measure is unchanged relative to 2014.

The first Conte government sought a sharp break with previous practices, proposing policies that would have sharply increased expenditure and violate EU deficit rules. After negotiation with the EU, these policies were scaled back, losing much of their stimulus effect. After the fall of the first cabinet, the second Conte government opted for a more fiscally prudent approach.

The first government increased protections for short-term workers while encouraging transitions to permanent contracts. Some success has been evident here. A new “citizen’s income” provides benefits to people in poverty while offering job-search assistance through employment centers. These centers have been slow to emerge.

Proposals for a flat tax (of two different rates) were scaled back to a tax reduction for self-employed workers. The initially expansionary proposals and confrontational stance toward the EU contributed to raising the cost of borrowing on international markets, but the second Conte government has proved more cooperative.

Economy

#41

How successful has economic policy been in providing a reliable economic framework and in fostering international competitiveness?

10
 9

Economic policy fully succeeds in providing a coherent set-up of different institutional spheres and regimes, thus stabilizing the economic environment. It largely contributes to the objectives of fostering a country’s competitive capabilities and attractiveness as an economic location.
 8
 7
 6


Economic policy largely provides a reliable economic environment and supports the objectives of fostering a country’s competitive capabilities and attractiveness as an economic location.
 5
 4
 3


Economic policy somewhat contributes to providing a reliable economic environment and helps to a certain degree in fostering a country’s competitive capabilities and attractiveness as an economic location.
 2
 1

Economic policy mainly acts in discretionary ways essentially destabilizing the economic environment. There is little coordination in the set-up of economic policy institutions. Economic policy generally fails in fostering a country’s competitive capabilities and attractiveness as an economic location.
Economic Policy
4
During the period under review, the first Giuseppe Conte government, supported by the Five Star Movement and the Northern League, held power until August, when the leader of the Northern League pulled his support and asked for a snap election. The parliamentary crisis was solved with a second Conte-led government, supported this time by the Five Stars, the Democratic Party and several smaller parties of the left and center. During the first Conte government, economic policy was the result of a continuous process of bargaining between the two parties, each of which were ready to increase expenditures and violate EU rules, and the much more prudent position of the technocratic finance minister (Giovanni Tria), who was quietly supported by the head of state. The Conte government had initially promised substantial changes in economic and social policies. The budget targets presented in autumn 2018, with the revised “Documento di Economia e Finanza” (NADEF), proposed a significant change in budgetary policies compared to previous governments, envisioning higher deficits for the next three years deriving from increases in social expenditures and pension costs coupled with tax reductions. The government’s declared goal was to fight poverty and provide a stronger stimulus for the economy, which had started to slow down in 2018. The two main measures introduced by the government (the citizen’s income and the reform of the pension law, with the so-called quota 100 that enabled earlier retirements) were presented as instruments for boosting a stagnating economy. In the end, however, after tough negotiations with the European Commission, the government accepted a reduction in its estimated budget deficit from 3% to 2.4%, and then finally to 2%. The expenditures for those measures had to be contained, while resources for public investment were cut; as a consequence, the economic policy’s stimulus force was almost completely lost. After the fall of the first Conte cabinet in August 2019, the second Conte government opted for a much more fiscally prudent economic policy, which was still being shaped in the final months of 2019. In both cases, however, the governments have failed to address the country’s economic problems with a serious economic vision.

Citations:
http://www.mef.gov.it/inevidenza/documenti/NADEF_2018.pdf

Labor Markets

#38

How effectively does labor market policy address unemployment?

10
 9

Successful strategies ensure unemployment is not a serious threat.
 8
 7
 6


Labor market policies have been more or less successful.
 5
 4
 3


Strategies against unemployment have shown little or no significant success.
 2
 1

Labor market policies have been unsuccessful and rather effected a rise in unemployment.
Labor Market Policy
5
Traditional labor market policies in Italy have been inadequate to the challenges of the recent economic crisis. The main measure to combat the effects of a crisis was the “cassa integrazione,” which temporarily subsidized the salaries of workers, either partially or fully, kept idle by private companies. The aim was to discourage companies from dismissing employees. However, this policy measure had no effect on those who were unemployed.
The difficult economic situation of the past 10 years further worsened the most problematic feature of the Italian labor market: the polarization between protected sectors and those that are largely unprotected and precarious. While older workers in the public sector and in large firms of the private sector enjoy sufficient and, in some cases, even excessive protection, young people and in general those working for small private sector firms are much less protected. Unemployment rates increased significantly after the economic crisis of 2008, but the increase was particularly dramatic among young people, making them the most vulnerable group in terms of poverty and exclusion.

The reforms of the labor market under the Renzi and Gentiloni governments showed a willingness to tackle this problem more resolutely. The reforms of the labor code (the so-called Jobs Act) on the one hand increased employers’ ability to hire and fire, but also introduced measures encouraging a shift from precarious to long-term contracts. Overall, the new policies have been relatively more successful in expanding the employment rate among older rather than younger workers. Furthermore, the significant increase in the number of employed people during 2017 and 2018 has been due mainly to the increase in short-term rather than permanent contracts (ISTAT).

The first Conte government introduced two innovations in this field. The first was the “Decreto dignità,” which was intended to increase protections for short-term workers and encourage transitions to permanent contracts. The initial data indicate a mixed success in this regard; while transitions from short-term into permanent contracts have indeed taken place, the overall balance of the labor market has not been significantly altered (see Lavoce.info 2019). The second innovation was the citizen’s income, a measure with two goals: to support people in poverty, and to assist unemployed people in finding a job with the support of a new network of employment centers. In this latter case, the citizen’s income is made requisite upon the acceptance of jobs proposed by the employment centers. The impact of the second aspect of the reform is much more uncertain than the first, given the slow process of implementation of the new employment centers. Both reforms are stronger with regard to the principles they are seeking to affirm than in the quality of their technical articulation. As of the time of writing, the second Conte government did not appear ready to correct their deficiencies.

Citations:
www.istat.it/it/archivio/219893
https://www.lavoce.info/archives/60922/tanto-rumore-per-nulla-un-anno-dopo-il-decreto-dignita/

Taxes

#40

How effective is a country’s tax policy in realizing goals of revenue generation, equity, growth promotion and ecological sustainability?

10
 9

Taxation policy fully achieves the objectives.
 8
 7
 6


Taxation policy largely achieves the objectives.
 5
 4
 3


Taxation policy partially achieves the objectives.
 2
 1

Taxation policy does not achieve the objectives at all.
Tax Policy
4
The Italian tax system continues to be stressed by the need to sustain the combined burden of high public expenditures and of interests on the huge public debt accumulated in past decades. It is also defined by its inability to significantly reduce the very high levels of tax evasion or the size of the black economy. As a result, levels of fiscal pressure have remained very high over the years (42.1% in 2018) and the tax burden is far from equitable. Fiscal pressure is very high on those households or companies that do regularly pay taxes, and is very low for all those who can and do evade taxation (e.g., many businesses and large numbers of independent contractors and self-employed professionals). Families with children have very limited exemptions. Labor and business are also heavily taxed, which results in fewer new businesses and job opportunities. Italian tax policy provides limited incentives and no compelling reason to declare revenues. The monitoring of and fight against tax evasion within this system are insufficient and far from successful. One of the biggest problems is that the system results in significant competitive distortions that benefit non-compliant earners. As the antiquated land register has yet to be reformed despite repeated promises, inequities in the property-tax system continue to persist.

One of most significant measures introduced by recent governments has been the online system for submitting income-tax declarations, the “730 precompilato,” which has gained usage year by year. The online system replaces paper forms for the majority of income taxpayers, and makes it easier to double-check tax returns. The shift to electronic invoices within the public administration and the new VAT payment method have also increased the effectiveness of fiscal oversight.

The first Conte government promised a revolutionary flat tax rate (though this was in fact two rates of 15% and 20%). However, faced with budget difficulties and the need to fulfil other priorities, it reduced its promises for 2019 to a more limited tax reduction (to a 15% rate) solely for self-employed workers (“partite IVA”) with earnings below €65,000. Except for limited changes with regard to family allowances and write-offs for technological investments, no major reforms have been introduced. The second Conte government has promised to step up the fight against tax evasion and reform (and increase) family benefits, but such promises are not new, and they had not been realized by the close of the review period.

Overall, the Italian tax system is able to generate a sufficient amount of resources, but is still in need of a deeper reform to increase horizontal equity, reduce obstacles to competitiveness and facilitate foreign direct investment.

Citations:
http://www.sviluppoeconomico.gov.it/images/stories/documenti/Industria_40%20_conferenza_21_9
http://www.istat.it/it/files/2017/06/CS_-Redistribuzione-reddito-in-Italia_2016.pdf
http://www.cgiamestre.com/wp-content/uploads/2018/08/PF-TASSE-2017-18-1.pdf

Budgets

#38

To what extent does budgetary policy realize the goal of fiscal sustainability?

10
 9

Budgetary policy is fiscally sustainable.
 8
 7
 6


Budgetary policy achieves most standards of fiscal sustainability.
 5
 4
 3


Budgetary policy achieves some standards of fiscal sustainability.
 2
 1

Budgetary policy is fiscally unsustainable.
Budgetary Policy
5
Italian governments have struggled over the past years to pursue budget consolidation during an era of prolonged economic stagnation. Fiscal policies have gradually reduced yearly deficits and produced a strong primary surplus. Yet because of the recession environment, attempts to reduce the huge debt stock (by selling, for example, public properties or stocks of state-owned companies) have had little success or have been postponed. The improved climate on the international markets and European Central Bank policies have yielded a sharp decline in interest rates for Italian long-term treasury bonds. This has eased the country’s budgetary pressures. After a modest recovery in 2016, economic growth accelerated through 2017, which has slowed the growth in public debt.

Fiscal policies for 2017 and 2018 benefited from the improved economic conditions. Taking advantage of the flexibility allowed by the European Union for countries introducing significant structural reforms, Italy’s government pursued a path of modest fiscal consolidation balanced by measures intended to sustain economic recovery. Tax reductions and incentives for entrepreneurial activities were only partially offset by reductions in public expenditure. In general, cuts to public expenditure, proposed in the government’s spending review, were implemented more slowly than initially proposed. This was due to resistance from interest groups and fear that such cuts would have recessionary effects. The pace of privatization of public assets was slower than anticipated.

The first Conte government initially sought to diverge significantly from this prudent path, proposing (contrary to previous agreements with the European Commission) an increase in the public deficit for 2019 to 2.4%, and a delay in efforts to reduce the public debt until 2020 or 2021. This rapidly produced tensions in the financial markets, and the spread between 10-year Italian and German government bonds rose in November 2018 to a high of 311 basis points (from about 140 under the previous government). After tense negotiations between the Italian government and the EU, and further bargaining within the government itself, the proposed deficit level was reduced to about 2%. However, the possibility that the EU might open an excessive deficit procedure emerged again in the spring of 2019, and this eventuality was avoided only through further revision of the budgetary goals. The economic stagnation of 2019 created difficult conditions for the new 2020 budget. The fall of the first Conte government, triggered by Salvini and the Northern League, left Conte’s new majority (supported by the Five Star Movement and the PD) with a difficult budgetary situation. The new government decided to pursue a path of fiscal prudence, and to take a more cooperative approach toward the European Commission. This has calmed financial markets, but has left few resources available to address the country’s social problems.

Citations:
http://www.mef.gov.it/inevidenza/documenti/NADEF_2018.pdf
http://www.dt.mef.gov.it/modules/documenti_it/analisi_progammazione/documenti_programmatici/def_2019/NADEF_2019__FINALE.pdf

Research, Innovation and Infrastructure

#31

To what extent does research and innovation policy support technological innovations that foster the creation and introduction of new products?

10
 9

Research and innovation policy effectively supports innovations that foster the creation of new products and enhance productivity.
 8
 7
 6


Research and innovation policy largely supports innovations that foster the creation of new products and enhance productivity.
 5
 4
 3


Research and innovation policy partly supports innovations that foster the creation of new products and enhance productivity.
 2
 1

Research and innovation policy has largely failed to support innovations that foster the creation of new products and enhance productivity.
R&I Policy
4
In recent years, Italian governments’ research and innovation policies have been weak, underfunded and not strategically coordinated. The current government has not been able to make much headway in this regard given the tight budgetary context. In spite of complaints from universities, which are severely underfunded compared to other European countries, public funding for universities and R&D has not been increased. The existing policy of linking university funding to the quality of research outputs has been continued and slightly strengthened. This policy is intended to incentivize universities to generate more quality research. Fiscal policies to promote investment in technological innovation in industry, introduced in 2016, gained momentum in 2017. The “Piano Nazionale Industria 4.0” program running from 2017 to 2020 was a very successful attempt to catch up with the rate of economic innovation in other OECD countries. However, the first Conte government showed no interest in strengthening research and innovation policies, and did not renew its predecessor’s Industry 4.0 incentives. The second Conte government seems willing to change direction, but as of the time of writing, it was too early to see whether promises would be implemented.

Citations:
http://www.sviluppoeconomico.gov.it/images/stories/documenti/Industria_40%20_conferenza_21_9

Global Financial System

#38

To what extent does the government actively contribute to the effective regulation and supervision of the international financial architecture?

10
 9

The government (pro-)actively promotes the regulation and supervision of financial markets. It demonstrates initiative and responsibility in such endeavors and often acts as an international agenda-setter.
 8
 7
 6


The government contributes to improving the regulation and supervision of financial markets. In some cases, it demonstrates initiative and responsibility in such endeavors.
 5
 4
 3


The government rarely contributes to improving the regulation and supervision of financial markets. It seldom demonstrates initiative or responsibility in such endeavors.
 2
 1

The government does not contribute to improving the regulation and supervision of financial markets.
Stabilizing Global Financial System
5
The government and other public financial institutions (e.g., the Bank of Italy) have been generally supportive of international and European policies oriented to improve the regulation and supervision of financial markets. Typically for Italy, the government and the Bank of Italy have preferred a collective working style within the framework of EU and G7 institutions rather than embarking on uncoordinated, but highly visible initiatives. However, the government has occasionally failed to fully understand the implications for the economy and banking sector of the introduction of new international regulations. It has therefore not been fully prepared for the consequences of the new rules. The first Conte government proved reluctant to work cooperatively with European and international organizations and often adopted a confrontational attitude. The second Conte government seemed ready to take a more cooperative attitude.
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