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The following is the Executive summary of the OECD assessment and recommendations, taken from the Economic survey of Italy, published on 4 June 2007.
A welcome economic recovery is under way in Italy. In part, this reflects the cyclical upswing in the rest of Europe, but there are also early signs of a more fundamental improvement, notably in terms of export and labour market performance. Even so, medium-term prospects remain challenging: total factor productivity shows little signs of resurgence, high public indebtedness threatens fiscal sustainability and population ageing looms large. Without further reforms to restore economic dynamism, living standards will be dragged down relative to other countries. This Survey discusses policies undertaken by the government to address these challenges, notably to boost competition on product markets, achieve fiscal sustainability and make fiscal federalism work – all in support of growth and adjustment.
Boosting competition among providers of services. Total factor productivity growth has stagnated since the start of the decade, not responding to technological innovation like in other OECD countries. This, in large part, results from the prevalence of competition-restraining regulatory policies. The government has recently adopted two helpful packages of liberalisation in areas such as retail trade, liberal professions and banking. Yet, it is crucial that the liberalisation process continues as there is still scope to strengthen market forces. There is a need to reduce government interventions in the enterprise sector, lower local barriers to retail trade, suppress excessive licensing requirements in professional services, restrain the influence of professional associations and enhance competition in retail banking. This would fuel competition, putting downward pressure on prices and leading to consumer-friendly outcomes.
Achieving fiscal sustainability. Even though buoyant revenues brought down the public deficit last year, Italy should maintain a prudent fiscal policy in 2007 and beyond, in view of the high public debt, which is still above 100% of GDP. The government’s objective to raise the primary surplus to 5% of GDP by 2011 seems adequate to ensure fiscal sustainability and create the room for an eventual alleviation of the tax pressure. However, it should be possible to reach this target ahead of time. In this respect, the blueprint for public administrative reform agreed with the trade unions demonstrates good intentions but its implementation remains uncertain. Fiscal sustainability also hinges on the full enactment of pension reforms; it is therefore regrettable that the already legislated adjustment to life expectancy was delayed and that the legislated step increase in retirement age is now being reconsidered.
Making fiscal federalism work. Italy has started to decentralise the provision of public services to lower levels of government. This is a promising development that could improve the allocation of resources in the economy and enhance the accountability of governments. But the process of decentralisation has run into teething problems, notably on the financing side. Transfers to sub-national governments are still largely based on historical spending, weakening incentives to develop local tax bases and be efficient in spending. Next steps should include tying regional equalisation transfers to objective structural parameters such as “standard costs” and own tax capacity. This would help eliminate soft budget constraints and improve incentives to promote local development. As well, the functioning of the internal stability and health pacts could be improved via sanctions that “bite”; for instance, health deficits should not be covered ex post, nor debts be assumed without involving strong accountability of local officials.
How to obtain this publication
The Policy Brief (pdf format) can be downloaded. It contains the OECD assessment and recommendations but not all of the charts included on the above pages.
The complete edition of the Economic survey of Italy 2007 is available from:
For further information please contact the Italy Desk at the OECD Economics Department at firstname.lastname@example.org. The OECD Secretariat's report was prepared by Alexandra Bibbee and Benoît Bellone under the supervision of Patrick Lenain.