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The following OECD assessment and recommendations summarise chapter 3 of the Economic Survey of Italy published on 17 June 2009.
Regulatory reform can improve business framework conditions
Despite adopted reforms, growth in Italy was low, partly as a result of still excessive or cumbersome regulation, low competition in some sectors and a mostly inefficient public sector. These problems need to be addressed in order to restore confidence in the Italian economy. Progress has been made in improving regulation, but higher productivity growth remains elusive. Parts of the service sector remain largely protected from competition or encumbered with excessive regulation, sometimes varying across regions. Inefficiencies in public administration can also add to the obstacles faced by the private sector. Much of the analysis of these questions in this Economic Survey is based on work carried out as part of the forthcoming OECD Regulatory Reform Review of Italy.
Pursue service sector liberalisation and promote competition…
It is important to maintain momentum in liberalisation policy, required in most service sectors and liberal professions, as highlighted in the OECD Review of Regulatory Reform. In the case of local public services, further progress will need to involve full separation of ownership interests in service providers from local governments and members of local government. The role of the Competition Authority in increasing competition in Italy, and in improving legislation itself through its regular reports on relevant issues, has been significant. The government should maintain and strengthen the basic rule that competition policy’s key yardstick must be the interests of customers, not of producers, employees or the state.
… and support this with more efficient public administration
The business environment is affected not only by the structure of regulations and competition enforcement, but also by the efficiency with which the public administration designs, implements and enforces regulations. Successive governments have tried to increase the focus of the administration on outcomes and there have been successes such as the partial separation of the tax collection agency from the civil service, allowing it to pursue a policy based on output based performance targets. Such an approach is part of the government’s "industrial plan" for the public administration. Reform of public administration to increase the focus on improving output-based measures of performance should be pursued. It is important to take this beyond useful, but in themselves insufficient, transparency measures such as publishing senior officials’ salaries and interests, to include operational ways to focus attention on outcomes rather than procedures at all levels of the administration. An important example of where efficiency needs to be enhanced is the administration of civil justice, where delays are among the longest in all OECD countries. Reforms have tended to concentrate on procedural rules but have neglected issues – such as fee structures and career management – that in practice generate incentives which discourage simplification of documentation and accelerated handling of cases.
Strengthen the use of auditing mechanisms in the public sector
Many of these issues have been well documented in the work on Public Expenditure Reviews, the first set of which were published in June 2008. The work on Public Expenditure Reviews should be strengthened, both to cover work on other policy areas and with a view to implementing some of the key reforms to incentives that they recommend. At the moment this work has switched focus to specific budgetary management and information issues; these are important but should not prevent further work on assessing substantive issues. Other auditing mechanisms, such as Regulatory Impact Assessment or cost benefit analysis for infrastructure projects, are also under utilised in Italy. They should be strengthened. In the context of the current crisis, some infrastructure expenditure could usefully be brought forward. But, given the reputation for mismanagement, it should be subject to strict cost benefit and monitoring criteria.
Plans for fiscal federalism may be difficult to pursue
A draft law on extending further spending and revenue responsibility to the regions, as foreseen in 2001, was introduced last year. However, the introduction of such a comprehensive reform of fiscal federalism mechanisms in the present period may be challenging and it is important to ensure strong political and regional consensus. Having said this, the basic lines of the law on fiscal federalism, notably financing essential expenditure from central revenues on a standard cost basis and a transparent revenue sharing mechanism based on VAT and income tax capacity, are sound. The definition of "essential" expenditure should be carefully defined to match national policy targets and it needs to remain stable through time. As the example of education shows, it is not straightforward to assess what "standard cost" implies in a country with such wide regional variations. The intention to phase in its implementation should help to minimise the difficulty of adjusting to the new system. Stability over time, along with transparency, is also important for the revenue sharing mechanism. A new local tax, partly based on the value of the housing properties, would be highly desirable from the point of view of fiscal federalism.
How to obtain this publication
The complete edition of the Economic Survey of Italy is available from:
The Policy Brief (pdf format) can be downloaded in English. It contains the OECD assessment and recommendations.
For further information please contact the Italy Desk at the OECD Economics Department at email@example.com.
The OECD Secretariat's report was prepared by Paul O’Brien, Romina Boarini and Enrico Sette under the supervision of Patrick Lenain. Research assistance was provided by Annette Panzera.