Emilia Soldani
OECD
OECD Economic Surveys: Italy 2026
Abstract
Labour productivity in Italy is lower than in most high-income OECD countries and productivity growth has lagged the euro-area average since the mid-1990s. While productivity varies significantly within firm size classes, the low aggregate productivity level is largely linked to the high share of small, low-productivity firms, which struggle to grow and expand. While medium- and large-sized firms in Italy are as productive as their peers in other large economies, their share of activity and employment is relatively small. Productivity growth can be revived by creating better conditions for businesses to grow and innovate. On-going efforts to increase the efficiency of the legal system and improved financial conditions will help. Fully implementing the NRRP reforms and investments and continuing these efforts beyond 2026 will be crucial. Reducing regulatory barriers to entry, easing the regulatory burden and simplifying tax compliance would support competition. Increasing public support for R&D would strengthen the innovation system. Upskilling and training managers and employees would contribute to raising firm performance.
Italy’s labour productivity growth has lagged other OECD countries in recent decades, weighing on output and competitiveness (Figure 4.1). Labour productivity growth has been below the euro-area average since the mid-1990s and stagnated after 2010, although it picked up between 2019 and 2022. The level of multi factor productivity declined between 2000 and 2022 (OECD Productivity Database). While in the decade to 2024 the expansion of hours of work has been an important driver of GDP growth, the demographic outlook highlights the need to raise productivity to support economic growth and well-being (see Chapter 1 for a discussion of growth dynamics and Chapter 3 for demographic trends).
Source: OECD Analytical Database; and desk calculations.
The reforms and investments undertaken through the National Recovery and Resilience Plan (NRRP) have started to address some of the economy’s structural weaknesses, and recent data show some modest but encouraging improvement. Supported by the large fiscal stimulus and overall improving macroeconomic conditions, real GDP grew faster in Italy (6.4%) than in the euro area (+6.3%) between 2019 and 2025. Despite slowing down during the Covid-19 pandemic, the valued added of the private sector increased by about 10% between 2019 and 2025, supported by strong employment growth, especially in the lower-productivity service and construction sectors (Chapter 1).
There is substantial potential to raise productivity and incomes by tackling long-standing barriers to business dynamism (MIMIT, 2026[81]). Section 4.2 shows how Italy’s slow productivity growth can be traced to three main characteristics: a high share of small firms with low productivity, low investment despite recent improvements, and weak business dynamism. Productivity growth could be best supported by a coherent array of measures to make the business sector more dynamic, help businesses scale up, increase innovation and improve skills including: removing fiscal and regulatory barriers to firms’ entry and growth (Section 4.3); deepening capital markets (Section 4.4); supporting investments in innovation and technology adoption (Section 4.5); and strengthening the adoption of managerial practices and reducing skill mismatches (Section 4.5.3). Full implementation of existing interventions in the National Recovery and Resilience Plan (NRRP) and Medium-Term Fiscal-Structural Plan (MTFSP) and a more comprehensive set of measures to improve the dynamism of the Italian business sector would support innovation, productivity and wages.
4.2.1. Smaller less productive enterprises make up a large share of the economy
Despite the recent ongoing reallocation of employment from smaller to larger firms (Accetturo et al., 2025[36]), small and micro enterprises with low productivity still make up a large share of Italy’s productive fabric, weighing on the overall level of productivity and counterbalancing the strong performance of larger firms (Figure 4.2). In terms of exports and labour productivity, Italian medium-sized (with 50-249 employees) and large (over 250 employees) firms, mostly located in the North, perform similarly or even better than their counterparts in France or Germany. However, smaller firms are on average less productive than their larger counterparts, and this gap is larger in Italy than in other large European economies. Despite recent increases in average firm size, micro and small firms still account for more than 60% of employment in Italy, compared to around 40% in France and Germany. This is not only driven by service industries. Also in the manufacturing sector, which is the second largest in Europe and the eighth largest globally in terms of value added, large firms are smaller and fewer than in Germany or France. While many smaller firms excel in the production and export of high-quality products, when compared to larger firms on average, they have lower economies of scale, invest and innovate less, and often struggle to attract and retain talent, as lower labour productivity levels constrain their ability to offer competitive wages. This is gradually changing: in the manufacturing sector, the number of firms with fewer than ten workers has decreased by 12% between 2014 and 2024 (Centro Studi Confindustria, 2025[39]).
The low share of larger business reflects in part weaker business dynamism whereby fewer successful firms grow into larger enterprises, and fewer low performing firms exit, and in part the weak productivity improvements within firms. Weak dynamism is reflected in generally high entrenchment, the stability of the identity and market shares of the largest firms within industries. There are some signs in recent years of the business sector becoming more dynamic with more productive firms expanding compared to others, although this has yet to be reflected in terms of aggregate productivity. The performance of top-performing firms, in term of productivity as well as investment and wages, has improved with respect to median firms, a pattern which could indicate an underlying reallocation of resources towards more productive firms (Accetturo et al., 2025[36]).
Note Industry, construction and market services (except public administration and defence; compulsory social security; activities of membership organisations). Both panels based on 2023 data, except employment in Panel A, which is 2024.
Source: Eurostat (sbs_sc_ovw).
Productivity tends to be lower in the South and the Islands, where, with a few notable exceptions, it declined by around 10% between 2000 and 2020. In recent years, however, supported by the large NRRP investments in the area, southern regions have performed relatively well, with labour productivity growing at similar rates in the South to those in the North and Centre. Regional differences largely reflect differences in composition. The Lombardy region, which has the highest labour productivity, also has a composition skewed towards larger firms and higher productivity sectors, with a strong start-up activity and a relatively low share of micro firms (in industry construction and market services, for example, the share of firms with fewer than 10 workers in Lombardy is 83%, compared to 86% in Italy). Firms in the South tend to be more concentrated in sectors with below-average productivity such as retail, hospitality, construction and agriculture, and to be smaller than in the North. Firms in the South were less affected by the selection process taking place after the global financial crisis (GFC), further accentuating geographic disparities in the level and growth rate of productivity. In addition to compositional effects, significant North-South productivity gaps of around 20% on average persist even within economic sectors and firm size categories, which are associated with differences in the availability of skilled workers, digital and physical infrastructure and public sector efficiency (Menon and Vermeulen, 2025[71]). To mitigate the North-South gap, about 40% of the NRRP resources were allocated to the South, and the 2026 Budget Law has strengthened and extended the tax credit for investments in the Single Economic Zone, and directed a broad set of measures under the Cohesion Fund toward supporting research and innovation in these regions. Assessing the effectiveness and concrete outcomes of these efforts will help to identify opportunities to sustain productivity growth across the territory.
4.2.2. Aggregate productivity and investment growth have been slow
The sectoral composition of the economy contributes to low aggregate levels of productivity and investment, as the employment share of low value-added sectors - like accommodation, food services, tourism and personal care, but also branches of the manufacturing sector characterised by low technological intensity - is larger than elsewhere. Over the past decade business services and ICT have had stronger productivity growth than the average, although weaker than in many other EU countries. Productivity has improved in construction, supported by the Superbonus tax support scheme. Similarly, the overall negative trend in labour productivity in the manufacturing sector masks some within-sector heterogeneity, both within and across the categories of product. However, productivity growth has been sluggish across most sectors (Figure 4.3).
Note: In panel A, productivity is per hour worked. In Panel B, the whiskers indicate the 25th and 75th percentiles.
Source: OECD National accounts tables; and Eurostat (nama_10r_3gva, nama_10r_3empers).
Business investment and the growth of the capital stock are lower than in many OECD economies (Figure 4.4). This is in part due to the orientation of the manufacturing sector, which accounts for 35% of total capital investment and 50% of R&D, towards low-technology activities. In terms of value added, for example, the sectors with medium and high technological intensity account for only about 40% of manufacturing, compared to 60% in Germany (Eurostat Structural Business Statistics). The growth of the capital stock has been close to zero on average since 2008, well below even modest rates in other large EU economies. Even in Italy’s best performing regions, gross fixed capital formation relative to output is lower than the average in France or Germany. The investment-to-value added ratio has been below the OECD median and generally below the rates in France and Germany over past decades, particularly after 2010 when the Italian banking sector faced significant challenges. Between 2019 and 2025 the capital stock, supported by the improved financial health of Italian firms and by public incentives, started to grow again for the first time since the GFC, but at a slower pace than employment, resulting in declining capital per worker.
Source: OECD Analytical Database; ISTAT and OECD calculations.
Like in many other OECD economies, capital formation is concentrated in real estate, which is less conducive to productivity growth. The predominance of real estate and tangible investments over ICT and intangibles, like R&D and intellectual property, which generally have the highest impact on productivity, is particularly marked in services but also affects the manufacturing sector (OECD, 2025[49]). This can be explained in part by the small size of the ICT sector in Italy, which despite the expansion of the last 10 years continues to employ a smaller share of employment than in other advanced OECD economies. Investments in intellectual property, including research and development (R&D) and ICT, however, remain among the lowest across the euro area in all sectors (including in ICT).
Slow investment growth is the result of longstanding structural issues, including access to finance and the large share of small firms, combined with temporary factors. In recent years, tighter monetary policy and energy price shocks were passed through to investment costs, while wage growth lagged. These developments reduced incentives for firms to invest in fixed capital formation, innovation and organisational improvements, and encouraged them to maintain highly labour-intensive production processes, exploiting the significant slack in labour markets, especially in lower skilled occupations. This phenomenon may have contributed to low capital deepening and a decrease in labour productivity (Colonna, Scoccianti and Viviano, 2025[1]). Reducing businesses’ exposure to energy price shocks through improved energy security may help protect their ability and incentives to invest (Chapter 3 discusses strategies for energy security).
4.2.3. Small firms rarely scale up
Low productivity growth in Italy is closely linked to weak business dynamism, particularly the weak scale up of successful firms and the slow exit from the market of less productive companies. Business dynamism is essential to promote innovation and support productivity growth. On the one hand, a healthy degree of market entry can facilitate the adoption of new technologies and organisational structures, as new firms add competitive pressure and are often more likely to innovate. On the other hand, competition from new entrants can induce incumbents to invest in productivity-enhancing innovations or process improvements or induce reallocation of resources to more productive businesses. Business dynamism in Italy is low, with lower start-up rates than in similar economies, especially in services (OECD, 2025[49]), lower exit rates across economic sectors, and weak scale-up dynamics, captured by the relatively low share of high-growth enterprises (Figure 4.5), though the latter may in part be attributed to differences in industrial structure.
2023
Note: high-growth enterprises with at least 10 employees in the beginning of their growth and having average annualised growth in number of employees greater than 10% per annum, over a three-year period.
Source: Eurostat (bd_size; and bd_hg)
Small and medium-sized enterprises in Italy are less likely to grow into large firms than in other large OECD economies. This is true not only in terms of growth in the number of workers (Figure 4.5, Panel B) but also their capitalisation (McKinsey Global Institute, 2024[80]). In Italy, multiple factors, rather than one single determinant, hinder firms’ expansion. Key factors include implicit regulatory incentives to remain small, the limited access to credit and the fact that most firms are owned and managed within the family. For example, the simplified tax regime, with its lower reporting requirements, encourages firms to maintain revenues below its eligibility thresholds. A large-scale survey in 2022 found 81% of all firms with at least 3 workers were owned by a single person or family, with higher shares in services, especially food and accommodation, and retail (ISTAT 2022 Census of Italian Enterprises). In addition, sectors that in Italy make up large shares of aggregate value added and employment have relatively low returns to scale, limiting firms’ incentives to grow.
Bureaucratic and structural barriers hinder the market entry of new firms, the scale-up of existing successful ones and the exit of low performers. While regulations are necessary to address market failures, a cumbersome legal and regulatory environment can create uncertainty, discourage market entry and divert existing enterprises’ resources from more productive activities (OECD, 2025[28]). Significant progress has been made over the past decade and in recent years through the NRRP, particularly in improving the insolvency framework and in reducing the length of judicial proceedings by leveraging administrative and digital innovations and strengthening human resources. As the NRRP reaches its conclusion, it will be important to consolidate these improvements and maintain the momentum by reaching the objectives outlined, at a general level, in the MTFSP. In particular, continued efforts in addressing regulatory barriers, improving legal certainty and reducing delays in the justice system and insolvency procedures are key to boost both innovation and productivity growth. Measures to tackle existing labour market rigidities, in the respect of the constitutional constraints and of the social dialogue, could support the reallocation of human resources to more productive enterprises. Containing the costs of compliance with taxes and regulations would reduce the costs of doing business and support economic activity.
4.3.1. Removing barriers to competition
The OECD indicators for Product Market Regulation (PMR) and Services Trade Restrictiveness identify higher-than-OECD-average restrictions to firm entry in non-financial services. While the overall PMR score is below the OECD average and indicates a relatively pro-competitive regulatory environment, the barriers to entry in service sectors and highly regulated occupations covered by the PMR indicators (accountants, architects, civil engineers, real estate agents, retail and pharmacies) are among the highest across the OECD (Figure 4.6). Reducing these barriers, by facilitating the accreditation process for new professionals, would support competition in the services sector and help to raise overall performance. For instance, Italy is currently considering alternative pathways for entry in the real-estate agent profession. As Italian manufacturing firms have outsourced an increasing share of their activities, including accounting and legal services, to the business sector, improving competition and productivity in the latter could have beneficial spillover effects to the manufacturing sector. For instance, between 2003 and 2019, a series of reforms facilitated entry into network and services industries and reduced the complexity and length of administrative procedures to obtain the permits to start-up a business, leading to increased competition and lower final prices, with further gains in value added and productivity elsewhere in the value chain (Lanau and Topalova, 2016[4]).
While occupational licensing regulations can help reduce information asymmetries, ensure public safety and protect consumers by ensuring the professionality and quality of work of licensed professionals, they can also stymie competition and risk benefitting already licensed professionals more than their clients. The barriers to competition in retail distribution are also higher in Italy than in other OECD countries (Figure 4.6), with a risk of hindering competition and generating monopoly rents. Further easing regulations in retail and in professional services without compromising quality standards could further support productivity growth in affected sectors as well as those downstream (Andrews and Égert, forthcoming[29]; Di Marzio, Mocetti and Roma, 2024[37]).
To improve the design and support the enforcement of competition law, Italy in 1990 created an independent competition authority (AGCM). By driving the design and enforcement of laws that improve the contestability of markets, this body supports business dynamism and can lead to significant benefits to consumers. The authority prepares yearly competition policy enforcement recommendations and advocacy activities, conducts in-depth analysis to assess the impact of acquisitions and mergers on market concentration and competition, and can impose sanctions to punish abuses of market dominance and anti-competitive agreements. A whistleblower platform introduced in 2023 is expected to further strengthen antitrust and anticartel surveillance and the enforcement of competition law. Since 2017, Italy has envisaged the adoption of an annual competition law as part of the yearly competition policy agenda submitted to Parliament (Legge annuale per il mercato e la concorrenza). Italy remains committed to pursuing these objectives under both the NRRP and the MTFSP, with actions planned to continue through 2029. The continued implementation of the annual competition law is expected to help steadily reduce restrictions to firm entry in services and benefit consumers through more competitive pricing and quality and encouraging firms to improve their productivity in affected services and in downstream industries (OECD, 2025[48]). In particular, operational decrees (decreti attuativi) are at times necessary to translate pro‑competitive annual reforms in key sectors like local public services, highways, concessions for public services, energy, waste, health, telecoms and digital platforms into actual changes in requirements on market behaviour and procurement practices. Ensuring that all due operational decrees are swiftly ready and published would help ensure successful implementation.
OECD Product Market Regulation indicators, index 0-6 from most to least competition friendly regulation, 2023
Note: In Panel A, services include six professions (accountants, architects, civil engineers, estate agents, lawyers, and notaries), as well as two sectors in retail distribution (general retail trade and retail sales of medicines). In panel B, the average of top 5 performers is measured within each activity.
Source: OECD PMR 2023 database.
4.3.2. Reducing legal uncertainty, delays and costs
Clear, well-drafted legislation and implementing regulations give certainty to enterprises regarding their obligations and rights and reduce compliance and enforcement costs for the administration. Trust in public institutions and perceptions of the quality of public services is among the lowest across OECD countries (Chapter 1). The scope for a court decision to be overturned by higher-instance courts is an important characteristic of modern judicial systems. In Italy, however, appeals to higher courts are relatively frequent and the probability of appealed decisions being modified or overturned is particularly high at around 12%, and even higher for legislative decrees and more complex legislation, and for criminal cases (30%). At the same time, poorly drafted legislation and the scope for alternative interpretations lengthen the duration of legal proceedings, weighing on public sector efficiency, firms’ operating costs and the certainty around returns from private investments. A recent empirical study suggests that improving the quality of legal drafting and reducing legal uncertainty in Italy could boost private investment and support entrepreneurial activity and innovation (Giommoni et al., 2025[7]). The use of simple language in legislation and administrative acts can make it easier for citizens and enterprises to understand and comply with regulations. For example, in Norway the requirement for all public bodies to communicate in a clear and correct language adapted to their target group (Language Act), and the introduction of courses and of a web-based toolbox to help civil servants make written language more user friendly (Klarsprak project) have been shown to lead to fewer complaints from citizens and fewer requests for information and help (Johannessen, Berntzen and Ødegård, 2017[53]).
The costs of complying with legislation and regulations do not solely depend on their stringency and clarity, but also on their potential contradictions or by apparent overlaps with pre-existing norms at the local, national or European level. The Italian legal framework minimises overlaps by virtue of the clear hierarchy of legal sources, by which European norms prevail on national and regional ones and new provisions prevail on superseded legislation. Nonetheless, concurrent legislations create uncertainty and lead firms to consult legal advisers or courts. Addressing this would help reduce the compliance and administrative costs.
The delay between the adoption of general legislation and the implementing executive decrees (decreti attuativi) contributes to legal uncertainty, hampering investment or inducing enterprises to postpone business operations until decrees are published. In the Italian legal framework, primary laws represent general frameworks, while executive decrees detail how primary laws are to be applied. Ensuring the prompt adoption of decrees would improve legal certainty and support private investment. Overly complex regulation and decrees hinder businesses’ understanding of the requirements and their scope to pursue the most efficient means. The need to provide unambiguous and precise restrictions and indications on how a given rule should be applied should be weighed against the risk of making it overly prescriptive and complex. Analyses in other OECD countries, such as the United States, identify significant losses from higher regulatory compliance costs for productivity and business dynamism (OECD, 2025[28]). Reforming how regulations are designed and applied can reduce the compliance costs (OECD, 2025[48]):
Monitoring the costs and challenges of the application of legislation and regulations can inform their periodic review and revision to reduce these losses. Italy’s existing impact assessment practices for new regulations compares well with other OECD countries, according to the OECD’s iREG indicator, although it scores relatively low on the transparency index (Figure 4.7), which captures the extent to which government decisions and regulatory impact assessments of primary laws (RIA) are made publicly available.
Early engaging stakeholders, businesses and consumers in the design and review of legislation can ease compliance costs, and improve cost-benefit assessments and the quality of regulation (OECD, 2025[48]).
Conducting targeted consultation during the design and before the adoption of new regulations, with the depth and timeframe for the process adjusted to the significance and likely impact of the regulations, can help contain the costs of consultation, as demonstrated by experience in Australia.
Complex and costly regulatory compliance generate fixed costs, harming the competitiveness of smaller businesses. To offset this, in Italy, firms with revenue or turnover below certain thresholds often benefit from exceptions or simplified regulations. However, this approach can discourage firms from growing above those thresholds and distort the efficient allocation of workers across firms and occupations (Di Marzio, Mocetti and Roma, 2024[37]). Granting expanding enterprises a temporary grace period to adapt to the stricter regulations for larger firms could mitigate such distortions.
In the context of the NRRP Italy has undertaken a large reform of its public administration system, with the goal to simplify and digitalise hundreds of administrative procedures. It has also created a complete, up-to-date public catalogue of all procedures and related administrative regimes across the country. The recent commitment to introduce an annual simplification law (Law 167/ 2025) could potentially further improve the quality and clarity of legislation and regulation and help reduce the compliance burden for enterprises, but this benefit should be balanced with the risk of adding to legal uncertainty. In practice, this requires the relevant ministries to identify a series of legislative provisions to be simplified, after consulting with stakeholders. This is a welcome step, as consulting local governments and representatives’ bodies for consumers and businesses can help identify priority areas to reform and support the effectiveness of this simplification effort.
Regulatory impact assessment for primary laws, 2024
Note: Only covers practices in the executive. In most OECD countries primary laws are mostly initiated by the executive. Asterisks (*) denote countries where a greater share of primary laws are initiated by the legislature.
Source: OECD Indicators of Regulatory Policy and Governance (iREG) Survey 2024.
Improving the efficiency of the legal system
The high costs of resolving commercial disputes are a burden on commercial relations and hinder business growth. Resolving a commercial dispute took an average of over 1100 days and costed about 30% of the disputed amount across a sample of large cities in Italy in 2019, which, taking into account differences in data gathering methodologies, can be compared to 600 days and 24% across the OECD (World Bank, 2020[30]). Recent reforms are expected to reduce this gap in performance. Speeding up commercial dispute resolution should support businesses transacting and working together, supporting growth. Across Italian provinces, resolving commercial disputes can range between 860 and 1750 days on average. Cross-regional comparisons suggest that in regions with weaker contract enforcement and lengthier judicial proceedings, firms face higher uncertainty and operational risks, including contract breaches, and tend to remain smaller and be more risk averse (Giacomelli and Menon, 2016[5]). The costs of monitoring compliance and resolving disputes can divert resources from core business development and scaling up. At the same time, weak enforcement favours family control and dynastic inheritance of firms, as firms try to rely on reputation and relationship-based transactions and limit exposure to outside contractual risks (Caselli and Gennaioli, 2012[6]).
Recent NRRP-related reforms and those laid out in the MTFSP aim to reduce the backlog in courts also through the extraordinary hiring of support personnel for the office of trial and of technical administrative personnel. The NRRP sets targets for Italy to reduce the stock of open civil cases (backlog) and the average disposition time, which refers to the expected duration of judicial proceedings. While Italy has made significant progress along the first dimension and met its midterm target, reducing the stock of open civil cases by 93.2% at the Courts level and by 99.4% at the Courts of Appeal between 2019 and the end of 2024, sustained efforts will be required to meet the final targets for the disposition time in civil justice. Between 2019 and 2025 the average disposition time decreased by 27.8% for civil causes and by 37.8% for criminal ones (based on the Ministry Datawarehouse della Giustizia Civile data). These data confirm the significant progress made so far and underline the need for an acceleration in civil courts to meet the target reduction of 40% by June 2026. The MTFSP confirms the general commitment to maintain this positive momentum to streamline civil and bankruptcy proceedings, promote alternative means of dispute resolution and out‑of‑court instruments, and increase the efficiency of civil courts and the justice system as a whole. Pursuing ongoing and planned efforts to further improve the efficiency and responsiveness of the judicial system, through the hiring of judges and technical staff where necessary and through the stronger links between careers and performance (including through the updated provisions for vertical and horizontal progressions and the new multi-level assessment process), could help accelerate legal proceedings and reduce uncertainty, supporting investment and productivity. Addressing staff shortages in some jurisdictions by allowing judges in other regions to engage through digital technologies is a welcome, pragmatic step. The use of NRRP funds for the hiring, mostly on temporary contracts, of technical staff has been key to accelerate the work of the courts and achieve the midterm targets (Cannella et al., 2024[38]). Ensuring continuity after the NRRP, including through converting some temporary hirings of personnel for the office of trial and of the technical administrative personnel to permanent job contracts, would be key to fully reap the benefits of the reforms and increase the capacity of the courts system. To further support these improvements, Italy should continue the digitalisation effort, including through online dispute resolution. Leveraging auxiliary technical experts (including notaries) for arbitration and alternative dispute resolution could further help pursue quicker legal decisions.
Scarce information, administrative complexity, and high costs can deter businesses, and particularly SMEs, from using legal services and dispute resolution procedures, opting for suboptimal informal dispute resolution (OECD, 2025[68]). The recent expansion of the scope of alternative dispute resolution mechanisms, like mediation and arbitration, is expected to reduce the burden on traditional courts while making justice more accessible to SMEs. Building on ongoing revisions to commercial law and regulation and of the justice system, the creation of SMEs-oriented points of access to offer clear and simplified guidance to dispute resolution systems could help relax such constraints and encourage firms’ investment and growth.
4.3.3. Improving insolvency procedures
Firm closures and reorganisations should play a key role in reallocating resources to more productive firms, contributing to raising the average size of firms. Firm turnover in Italy is around two-thirds of the OECD average, weakening resource reallocation through so-called creative destruction, and lowering productivity growth (Decker et al., 2020[10]). The low turnover and exit rates are in part due to complex and lengthy administrative procedures for insolvency and liquidation, with high compliance costs. In general, bankruptcy laws must strike a difficult balance between protecting creditor’s invested capital – which facilitates their investments and discourages excessive risk taking by borrowers – and avoiding excessive penalties for defaulting entrepreneurs to avoid discouraging business creation and experimentation. The recent revision of insolvency procedures can facilitate firms’ exit from the market and the reallocation of scarce human, physical and entrepreneurial capital to other more productive enterprises, reducing inefficiencies and boosting aggregate productivity growth. The revised framework improves early‑warning mechanisms and introduces simplified liquidation for small firms to encourage out‑of‑court settlements. This is expected to accelerate bankruptcy procedures, facilitate corporate restructuring and strengthen contract enforcement, resulting in more efficient market exit and turnover and supporting business creation (Calvino, Criscuolo and Menon, 2016[73]). The MTFSP indicates the plan to carry out an impact assessment of these reforms and adopt corrective actions where needed. Preliminary evidence suggests that the reforms may have induced firms to address financial distress at earlier stages, resulting in lower risks of entering judicial liquidation. While Italy’s barriers to insolvency now compare relatively well with other economies, there is scope to further improve the prevention of insolvencies and the treatment of failed entrepreneurs by strengthening the pre-insolvency regimes and by reducing the time to discharge insolvencies (Figure 4.8). Supporting second-chance entrepreneurs through coaching and legal guidance, as in Australia’s ABERA Restart Smart programme, can encourage entrepreneurs to build on their experience and create more successful businesses.
OECD insolvency indicator main sub-components, 2022
Note: The scores for the three main sub-categories are scaled from zero to one, with lower scores indicating more favourable frameworks.
Source: André, C. and L. Demmou (2022), "Enhancing insolvency frameworks to support economic renewal", OECD Economics Department Working Papers, No. 1738, OECD Publishing, Paris, https://doi.org/10.1787/8ef45b50-en.
4.3.4. Reducing the implicit regulatory and fiscal barriers to firms’ expansion
Regulatory barriers to workforce adjustments increase the risk for firms of hiring new workers and make it harder for them to adjust their workforces and achieve productivity gains, while high non-wage labour costs impair competitiveness and weaken incentives for businesses to expand and develop. In particular, small firms in Italy benefit from a simplified regime for labour regulation and for accounting obligations. In such context, firms face an implicit incentive to contract out some of its projects and operations to external consultants or firms, rather than expanding their headcount. About 65% of Italian SMEs see labour regulations as an obstacle to investment (EIB Investment Survey, 2023). Employment protection is generally high in Italy for both temporary and regular contracts (Figure 4.9).
Job dismissal regulations in Italy tend to vary with firm size, with a risk of creating undesirable threshold effects. For example, firms below 50 employees are eligible for simplified labour regulations. The Jobs Act reform of 2014 introduced progressive schemes to mitigate sharp policy changes based on firm size cutoffs. In particular, it abolished the requirement for firms with 15 or more workers to reinstate unjustly dismissed workers, substituting it with a progressive compensation system. This reform, which de facto reduced the discontinuity in job protection legislation between firms with fewer and more than 15 workers, might have supported business growth, especially for firms around the 15-employee threshold, and lifted labour and total factor productivity (Ciminelli and Franco, 2025[9]). Within the limits allowed by the Constitution and in the respect of social dialogue, reducing uncertainty regarding job dismissal costs and gap in job protection between larger and smaller firms without amplifying the gap between standard and temporary job contracts would help improve hiring conditions for firms without creating large distortions or increasing labour market duality (see Chapter 2).
High non-wage labour costs, which include payroll taxes, regional and local sur-taxes, social security contributions and mandatory benefits, can deter firms, especially smaller ones, from expanding their workforce (Guo and Wallskog, 2025[8]) and can favour informal employment or the use of (dependent) self-employment. In addition, they can negatively affect entry wage rates and salary scales, further limiting businesses’ ability to attract and retain qualified workers in a context of relatively low labour productivity. In Italy, these costs are very high (Figure 4.10) and can be especially challenging for small firms due to their lower economies of scale. The high labour tax and social contribution wedge also weighs on the attractiveness of formal employment.
Strictness of employment protection, temporary and regular contracts, 2019
Note: The EPL index is a score ranging from 0 (no protection) to 6 (highest protection).
Source: OECD Indicators of Employment Protection.
To stimulate employment growth, especially among underrepresented groups such as women, young people and individuals undergoing work transitions or living in disadvantaged areas in the South, Italy has been using temporary incentives schemes that reduce the employer’s social security contributions when hiring targeted groups, including younger workers and women (among others Bonus Donna, Bonus Giovani). The use of temporary schemes contributes to the general uncertainty about policy and temporary tax reliefs and adds to the complexity of the tax system. As discussed in Chapters 1 and 2 of this Survey, a permanent reduction of non-wage labour costs that brings Italy towards the average of OECD EU countries, especially for low-wage workers, would lower business costs and provide greater certainty.
Source: OECD Taxing wages 2025; and Eurostat(lc_lci_lev).
4.3.5. Reducing the complexity of tax incentives
To reduce the tax burden on enterprises and stimulate business activity, Italy has introduced numerous tax allowances and penalties that vary across categories of investment, types of work contracts and with different compliance deadlines scattered throughout the year. While the various penalties and allowances aim to meet diverse policy objectives, the range of measures raises the costs of compliance and may blunt the different measures’ effectiveness, while further eroding the relatively low levels of corporate income and capital tax revenue compared with other countries (see Chapter 1). On the one hand, targeted support for small and medium enterprises is necessary due to the centrality of small firms in the Italian economy and the fact that they are often perceived as more vulnerable to external shocks. On the other hand, very strong support to small firms and the inclusion of firm size as a qualifying characteristic for eligibility for incentive programmes and regulatory waivers can deter firms from expanding, as doing so would result in losing access to such privileges. The stratification of rules and procedures over the years has made access to business support complex. This complexity also subjects businesses to uncertainty regarding the final amount of taxes to be paid, detracting from the effectiveness of the incentives.
A number of temporary subsidies and special tax regimes aim to support smaller firms. Some of these schemes address temporary shocks, including the COVID-19 restrictions in 2020-2021 and the surge in energy prices starting in 2022, while others attempt to offer temporary relief from the structural issue of high tax and compliance costs. For example, new micro-businesses with revenues of up to EUR 85 000 are subject to a simplified lump-sum tax regime of 5% of revenues and are exempted from regular VAT compliance requirements (regime forfettario, see Chapter 1). Evidence from Finland and other OECD countries suggests that sharp size-based thresholds in tax incentives can create adverse cliff-edge effects and induce firms to stay small, slowing growth (IMF, 2017[67]). To limit such adverse effects and to contain their ongoing costs for public revenues, the incentives and eligibility criteria are often temporary in Italy, adding to financial uncertainty for businesses and weighing on investment and business expansion. Addressing the burden of tax and compliance costs through a systematic and permanent reform of the tax system would reduce the need to intervene with temporary and often overlapping corrections, incentives, exemptions and tax relief measures, improving the business environment and bolstering investment (Chapter 1 discusses how such an effort can be financed through other tax policies and improved tax collection). Overall, the use of incentives should be moderated, as excessive artificial support for inefficient incumbents may limit contestability and the entry of new businesses and stall productivity growth (Acemoglu et al., 2018[15]).
Under the NRRP Italy has introduced a reform to simplify and rationalise the national incentives system and facilitate access to information through the creation of digital platforms (incentivi.gov.it). The approval in November 2025 of the Incentive Code aims at rationalising the existing incentive schemes and strengthen coordination among granting authorities. The Code aims to introduce a standard call for tenders and application procedures (bando-tipo), and to create a stable forum for coordination between the State and the Regions (Tavolo permanente degli incentivi). Timely implementation of these measures, assessing their effectiveness and, as outlined in the MTFSP, further streamlining the incentives schemes would help reduce administrative and compliance costs, increase tax certainty and support business activities.
Prolonged low investment by firms in Italy has in part reflected constrained access to finance. The past difficulties in the banking system negatively affected employment, wages, investment and value added in the years after the GFC (Barone, de Blasio and Mocetti, 2018[45]). The improvements in the banking system’s health and in fiscal management have contributed to Italy’s improved sovereign risk rating (Chapter 1), which has reduced the premium and expanded access for Italian borrowers. Despite the substantial progress, firms’ balance sheets remain small and external financing remains heavily dependent on bank lending, while access to equity market is used mostly by large firms, which in Italy are relatively few.
The overall balance sheet of Italian non-financial corporations is relatively small compared to other large European economies and debt and loans still represent a higher share (Figure 4.11), despite the share having significantly decreased since the GFC. Only 3.9% of all non-financial corporations and 18.7% among larger firms with over 250 employees are financed through equity markets, according to the 2022 ISTAT Census of Enterprises. This reflects demand- and supply-side factors that are difficult to disentangle. On the demand side, the large share of small traditional firms and the structurally low levels of investment create less need for working capital and long-term investment. On the supply side, the Italian capital market still lags those of many other advanced economies, hindering the creation of innovative startups and the growth of firms. The mobilisation of household savings into capital markets is limited and the asset management sector and venture capital (VC) and private equity markets are underdeveloped.
Notes: Panel B only covers firms with at least three employees. Large firms indicate enterprises with 250 or more employees. Most firms (75% among large firms, and over 80% overall) also use self-financing, not shown. Short loans: below 12 months, long-term: above 12 months.
Source: OECD Annual Financial Balance Sheets (stocks), consolidated. Panel B: ISTAT Censimento delle Imprese 2023, Tav. 39.
The Italian Parliament is currently examining a legislative decree, approved by the government in October 2025, to implement a comprehensive reform of the financial system (as generally outlined in the Legge Capitali, 2024). The decree aims at enhancing the attractiveness and depth of national capital markets, modernise the financial regulatory framework and facilitate firms’ access to equity financing. Maintaining the reform momentum and identifying further margins of improvements will be key to ensure that Italian firms can intensify investment in innovation and strengthen their position on international markets. Further harmonisation and a deepening of capital markets at the EU level could improve Italian firms' investment and promote productivity growth. Like in Italy, financial systems in the EU are underdeveloped and predominantly bank-based relative to other large OECD economies. Reviving competition in savings and investment products not only within Italy but also across EU member states could support the deepening of long-term capital (Borowiecki and Giovannelli, 2025[57]).
Access to risk capital and equity, in addition to bank borrowing, is an important driver of the growth of firms with high productivity potential. For example, start-ups investing in intangibles like software, patents and intellectual properties have difficulties raising financing from banks, given the low collateral value of these types of capital investment. Start-ups in their first years also often have negative or highly volatile cash flows and higher risk profiles due to high investment costs for product development, marketing and operations. In addition, firms of all sizes need longer-term oriented investments to innovate, scale-up, and compete with firms in international markets (OECD, 2020[60]).
4.4.1. Improving access to bank-based financing
The solidity of the banking sector has improved significantly since the GFC, yet challenges persist in access to credit, especially for smaller firms and start-ups. The improvement in the ability to lend is in part due to banks having strong balance sheets. At the same, tighter prudential standards can weigh on banks’ willingness to lend, especially to higher risk or low-collateral borrowers, such as more innovative or new enterprises. In particular, the enforcement of Basel III leverage ratio requirements has strengthened banks’ incentive to shift their portfolio towards lower-risk borrowers and away from those who, based on new requirements, are assessed as being riskier (Galardo and Vacca, 2022[11]). This has negatively affected firms’ ability to borrow and invest, particularly for small and micro firms that are generally regarded as riskier and face higher interest rates than their larger peers (Figure 4.12).
Recent measures to address non-performing loans (NPLs) will improve banks’ lending capacity. NPLs tend to limit banks’ ability and willingness to extend new loans, due to higher required capital and elevated funding costs. The volume of NPLs on banks’ balance sheets have declined from nearly EUR 360 billion in 2013 to about EUR 60 billion in 2023, reducing the share of non-performing loans towards the euro-area average (discussed in Chapter 1). Additionally, the on-going revisions of the insolvency framework have supported the development of a secondary NPL market through the introduction of a government guarantee scheme on securitisation of banks’ bad loans (GACS). These measures and the streamlining of the procedures for out-of-court and in-court restructuring and insolvency processes are expected to improve businesses’ access to bank credit. The MTFSP includes commitments to monitor the outcome of these reforms, take further corrective action where needed and identify remaining bottlenecks. Continuing to monitor and foster the secondary market for NPLs will be key to continue recent progress and to ensure the efficient reallocation of capital and funds from defaulting businesses. The establishment of securitisation platforms (piattaforme di cartolarizzazione) to market financial products pooling the loans and debt held by financial institutions could further improve access to credit for firms of all sizes.
Interest rate spreads between loans to SMEs and to large firms, nominal rates, 2023
Source: (OECD, 2024[52])
In recent years, public guarantees of loans (SACE, MCC, FRI-Tur, European Investment Fund) have been introduced to support bank lending, investments, economic activity and employment in the aftermath of the macroeconomic shocks linked to COVID-19, energy prices and trade restrictions (Asdrubali and Signore, 2015[75]). The stock of active public guarantees in 2025 was estimated at around 14% of GDP, a share almost three times higher than in 2019 (Unimpresa, 2025[46]; MEF, 2025[43]). Public guarantee schemes add to the government’s contingent liabilities and risk distorting incentives and benefitting banks’ balance sheets more than intended. Since they also do not necessarily address the underlying issues that limit businesses’ access to credit, the use of such guarantees should be reduced, and their costs and benefits carefully monitored.
4.4.2. Further developing the corporate bond market
The corporate bond market has expanded significantly over the past twenty years, owing in part to favourable liquidity and monetary conditions, targeted incentives like the minibonds incentive for unlisted issuers and the creation of a separate market for minibonds (Extramot-Pro). The expansion allowed firms to diversify their source of funding and strengthen their financial structure, reducing their overall indebtedness level (Meucci and Parlapiano, 2021[19]). Nonetheless, the corporate bond market remains relatively small, accounting for less than 10% of GDP, compared to 25% in France, 19% in the Netherlands and 14% in the UK.
The appeal of corporate bonds in Italy is limited by the complex regulatory frameworks and high issuance costs. The strongest regulatory barrier, an article in the Civil Code preventing non-listed joint-stock companies (S.p.A.) from issuing bonds exceeding twice the value of their capital and reserves, was partially removed in 2012 and completely dropped in 2024. Similar prudential restrictions still apply to limited liability enterprises (S.R.L.), which can only issue bonds to professional investors and are therefore limited in their ability to use these financial instruments to finance their activities and investments. The documentation and procedures required for bond issuance (including for prospectuses) have been simplified in 2024 and this is expected to significantly lower the cost and burden of issuance. The adoption of further simplified procedures for companies that have already issued bonds to issue additional bonds on the same market could further reduce administrative burdens without compromising the prudential, financial stability and due diligence requirements or generate significant additional integrity risks (OECD, 2025[16]).
The relatively small size of the Italian capital market further limits its attractiveness not only for investors, but also for domestic non-financial businesses looking to issue bonds. In 2024, for example, 88% of all Italian corporate bonds were listed on a foreign market. Strengthening the participation of qualified individual investors and collective investment schemes may boost the liquidity and sustainability of the Italian corporate bonds and mini-bonds markets (OECD, 2020[60]). Two recent interventions, one at the national and one at the EU level, mark progress in this direction. First, the minimum investment threshold for non-professional investors’ access to reserved funds was reduced from EUR 500 000 to EUR 100 000 (2021 amendment to Article 14 of Ministerial Decree (DM) 30/2015). Second, at the EU level, the quantitative minimum limits on retail investment in European Long-Term Investment Funds (ELTIFs) have been removed (EU ELTIF 2 Regulation, 2023). Further support for retail participation may stem from the measures envisaged under the EU Retail Investment Strategy (EU RIS) to enhance the transparency of retail investment, and from the forthcoming amendment to the Consolidated Law on Finance (TUF), which will allow reserved funds to introduce partial early redemptions for certain categories of investors. To enhance their effectiveness, national measures would need to be complemented by EU-level initiatives to foster cross-border investment by European retail and institutional investors and enhance the overall attractiveness of EU financial markets.
4.4.3. Developing credit markets to support investment
Further improving access to credit markets for Italy’s non-financial corporations would help boost investment and business growth. Despite recent progress, alternative financing sources, including market and private equity VC, are still relatively underdeveloped in Italy, and many firms resort to self-financing. The OECD 2023 Recommendation on SME Financing encourages developing alternatives to bank lending, including equity and related instruments, and attracting a wide range of investors, including institutional investors, in SME assets. During the 2010s, non-bank financing opportunities significantly expanded, thanks to a series of reforms and to public investments in early-stage businesses and smaller firms with high-growth potential (Fondo di Garanzia per le PMI). The main recent reforms are the introduction of individual saving plans (PIR), incentives to issue corporate minibonds, the creation of a separate market for start-ups and SMEs’ equity and the ELITE programme to help companies access capital and scale up. The legislative decree of October 2025 proposes a simplification of the rules governing public offerings and issuers’ governance, the creation of limited partnership companies for collective investments in the form of private equity and VC and a simplified registration procedure for asset managers of alternative investment funds. Some of the reforms and their implementation are still in progress and, while they address some of the issues highlighted in the Capital Market Review of Italy (OECD, 2020[60]), an assessment of their effectiveness will only be possible in a few years.
The reliance on bank credit or self-financing, as opposed to capital market options, is particularly high for smaller firms Figure 4.11, Panel C) and for business owners with low financial skills (ISCE, 2025[22]). A significant share of Italian SMEs relies on factoring to turn assets and receivables into immediate cash flows. Other forms of credit that allow firms to finance their investments, like crowdfunding and leasing, have been growing in Italy since 2015, especially among SMEs, yet their use remains below other large EU economies like Germany, Spain or France, despite the use of public incentives (New Sabatini Law, hyper-amortisation under Industry 4.0). A careful assessment of the effects and possible limitations of past incentives schemes can inform and guide the design of alternative solutions in the future.
At the same time, large shares of household savings remain untapped for productive investments, as savings mostly concentrate in real estate, deposits and government-issued securities. In particular, the second pillar pension system, which in other EU economies provides private equity and VC investments, is largely underdeveloped. Fewer than 12% of households invest in life insurance or voluntary pension products in Italy, compared to around 40% in France, Belgium and Germany. Low use of relatively sophisticated saving instruments is linked to the very low levels of financial literacy and the relatively high gap between the fees of active and passive funds. To boost participation in Italian supplementary pension schemes, the 2026 Budget Law (Law 199/2025) introduces an automatic enrolment system, with an option to opt-out, and increases the tax-deductibility threshold for contributions. To incentivise pension funds to increase the share allocated to equity, the Budget Law also substitutes the previous guaranteed minimum return mandate with a life-cycle approach. In addition, in 2024, Italy introduced financial education as part of the teaching of civic education in the first and second cycles of education to provide students the tools to understand the concepts of savings and investments (Box 4.1 discusses examples of policy interventions to improve financial literacy and mobilise savings). This is a welcome intervention as Italian students score below the OECD average in financial literacy and 14% of 15-year-old students report having learnt about diversification or exchange rates and 9% of compound interests in the 2022 OECD PISA survey.
Large shares of households’ savings in Italy are locked in real estate, checking accounts, deposits and government-issued securities. Households’ low take-up of financial investments has been linked to very low levels of financial literacy. For instance, Italy scores last among OECD peers in the OECD/INFE 2023 international survey of adult financial literacy, and last among EU peers in the World Bank Global Financial Inclusion index and in its household participation sub-index (Figure 4.13).
Across the OECD, several types of interventions have been used to help mobilise households’ savings and deepen capital markets, ranging from public educational campaigns to tax incentives and automatic enrolment of workers in private pension funds.
Improving financial literacy
Public campaigns to improve financial literacy, including in schools, may help give households the skills and confidence to better diversify their saving instruments according to their needs, reduce over-indebtedness, use credit responsibly, make informed and prudent financial decisions and capital markets investments, including saving for the long-term and retirement, and improve their financial well-being.
Many countries incorporate financial education in school curricula to build early-life competencies, informed by PISA assessments and OECD competency frameworks. Evidence from the US suggests that young adults in states with mandates for financial literacy education have higher credit scores and are less likely to make late payments. Through its Yrityskylä project, Finland complements school-based financial learning with hands-on learning in make-believe business villages where children practice cash payments, business management and saving decisions.
Governments often partner with central banks, financial regulators, NGOs, and industry, including commercial banks, to build on their technical expertise for the delivery of financial education.
Countries like Greece, Ireland, Poland and Portugal are developing or implementing national financial literacy strategies with technical support from the OECD.
Other interventions to mobilize savings
Several OECD countries have used tax incentives to incentivize households’ take-up of private insurance funds.
The UK and France incentivize individuals to invest in equity by offering tax reliefs on the capital gains form specific investments plans (ISAs in the UK, and Plan d’Épargne en Actions in France).
The UK and New Zealand auto-enrol workers in private pension systems (nudging) and require employers to match their employees’ contributions in private pension investments.
Long-term saving can be encouraged by deferring the payment of taxes on returns on investments in retirement savings till the withdrawal (like in Mexico and France).
As part of its NRRP commitments, Italy has recently adopted a similar strategy with a direct target to support VC, offering a complete tax relief from the capital gain tax of “qualified investments” of pension funds that have a sufficiently high share allocated to VC (at least 3%, increasing to 5% in 2026 and to 10% in 2027, as per the Decreto Economia 2025).
Overall financial literacy score, 2023
Note: The score, from 0 to 100, captures aspects of financial knowledge, behaviour and attitudes, see (OECD, 2023[35]) for details.
Source: OECD/INFE 2023 international survey of adult financial literacy (OECD, 2023[35]).
Strengthening Italy’s equity markets
Well-functioning markets can support productivity growth and business expansion (Duval; Hong; Timmer, 2017[31]). While equity markets are still relatively underdeveloped in Italy, their expansion would play an important role in financing business investment especially among larger firms. In Italy, market capitalisation as a share of GDP was 19% in 2024, far below the levels recorded in other advanced economies. Large firms are under-represented in the equity markets compared to their peers in other major economies and rely more heavily on bank loans. In 2024, for example, Italian firms represented only 6% of the MSCI Europe Index, up from 3.6% in 2021, while both Germany and France exceeded 15% and the UK was around 22%. Low public equity market capitalisation is even more severe among smaller firms, due to the high cost of funds and to the burdensome regulatory processes of equity markets. While necessary and in large part in line with European regulation, requirements like the underwriting costs for initial public offerings (IPOs), the administrative and legal fees, the reporting obligations, and the need to disclose financial balance sheets often deter smaller firms from issuing equity. The introduction of a new simplified opt-in regime for newly listed companies and SMEs with a market capitalization not exceeding EUR 1 billion, proposed in the Legislative Decree under revision at the Parliament, is a welcome step in supporting SMEs’ market access.
Improving transparency, simplifying issuance procedures and reducing the cost of issuance and compliance would encourage the development of Italian capital markets. The 2024 Capital Markets Law and the ongoing reform to the Consolidated Law on Finance (TUF and DFAR) introduce provisions to facilitate firms’ access to capital markets and improve the transparency and attractiveness of the Italian financial markets to international investors. For example, they strengthen the voting rights of founders and long-term shareholders to encourage listings (OECD, 2025[12]). The comprehensive reform of the Consolidated Law on Finance and the Civil Code governing listed companies is expected to reduce the administrative burden on listing companies and to streamline the authority’s (CONSOB) supervisory processes. In the context of the TUF reform, further revising prudential regulations may encourage pension funds, insurance companies and mutual funds to increase their purchases of corporate equity and bonds, improving the depth of the market and businesses’ ability to raise non-bank credit.
The creation of a dedicated stock exchange for small- and medium-sized Italian businesses (Euronext Growth Milan, EGM), with simplified listing requirements and lower fees and minimum access requirements, has made some inroads into these costs. In 2011, Italy introduced the possibility for all corporate taxpayers to deduct a notional return on new equity from the corporate income tax base (Aiuto alla Crescita Economica, or ACE). While the regime, active until 2023, applied to all companies, its primary objective was to lower the cost of equity financing by mitigating the preferential tax treatment of debt over equity. To further support the new listing of SMEs on the EGM market, in 2018, Italy introduced a tax incentive to partially cover the listing costs (Credito d’Imposta, covering up to 50% of the legal fees up to EUR 500 000), which can be cumulated with additional regional incentives (for example in Liguria and Lombardy). While these various measures have contributed to the growth of the equity market, the Euronext Growth Milan still lags its French and UK counterparts (Euronext Growth Paris and AIM UK) in terms of number and total value of IPOs. In light of their costs and the risk of asymmetries and distortive effects, it is important to periodically evaluate the effectiveness of the incentives and assess whether they should be re-focused on the needs of operators, investors and companies, extended or repealed. Facilitating the transition, through simplified regulatory requirement, from the EGM to the main stock market for companies meeting suitable reporting and listing criteria may support businesses’ scale-up. To this end, Italy has recently authorised companies listed on SME growth markets, including the EGM, to submit their financial statements according to the International Financial Reporting Standards (IFRS), typically required for admission into regulated markets. The reform of the Consolidated Law on Finance, currently under discussion, provides a more flexible governance regime for new entrants into regulated markets and for issuers with a market capitalization below EUR 1 billion. This reform is expected to further reduce the regulatory gap between growth markets and regulated markets, facilitating the transition of smaller companies into the regulated market.
Italian firms are delisting from the main public equity market. In 2024 the number of companies of all sizes leaving the Milan stock exchange exceeded the number of new listings (CONSOB, 2025[13]), a tendency common to other European markets, including Paris and London. When leaving the main public equity markets, firms in theory have the option to either delist altogether or move to a lower cap market, characterised by a less prescriptive regime (such as Euronext Growth Milan). In practice, the option of downlisting to smaller-caps markets remains mostly unregulated in Italy, reflecting the lack of a harmonized EU-wide regulation and making it harder for enterprises to choose this option. Empirical analysis suggests that the lack of a clear path to downlisting can favour delisting, which is on the rise in Italy as well as across the EU, and even discourage firms from going public altogether markets (Balp, 2024[72]). By simplifying the downlisting procedure, the ongoing reform of the laws governing the financial sector (TUF) is expected to help struggling firms move from more heavily regulated but deeper markets (such as Euronext Milan) into more agile ones (like Euronext Growth Milan) and to deter them from delisting. This in turn may encourage new listings and retain already listed companies, deepening the Italian capital market. To further discourage firms from delisting, the tax incentives already introduced could be reformed to require firms to remain listed on public equity markets for a minimum time. Additional action will however be required to identify and address the root causes of delisting. The latter may include firms’ failure to meet listing conditions and their preference for greater operational freedom, including from environmental, social, and governance (ESG) requirements, at the cost of reduced transparency. Regulatory simplification and a contemporaneous effort to train and coach managers and entrepreneurs would help them comply with regulations and organisational challenges.
In recent years, the Italian equity market has increasingly attracted foreign funds, which between 2014 and 2023 represented about 68% of the total value of the equity market (AIFI, 2024[20]). This provides better access for Italian businesses to capital and typically increases their internationalisation, innovation and adoption of international best practices. The capacity to attract international investors has also been facilitated by the Capital Markets Law reforms discussed above and by the acceptance, since 2024, of digital submissions of prospectus approvals in English language. Additionally, in 2023, Italy introduced regulations for the issuance and circulation of financial instruments based on distributed ledger technology (DLT, or blockchain), to facilitate companies' access to the capital market and reduce the costs of issuing and circulating financial instruments (Legge Fintech).
Public investment and co-investment schemes can help attract equity market investors in smaller firms. To catalyse equity financing to small and medium enterprises listed on public equity markets, Italy has recently launched several state-backed investment initiatives (through the funds Fondo Nazionale Strategico Indiretto, Fondo Nazionale Made in Italy). These are funds-of-funds that aim to act as anchor investors (i.e., first investors in an offering) to improve private investors’ confidence in the Italian SMEs equity market. To strengthen their role, they are mandated to maintain an investments portfolio composed by at least 70% of Italian SMEs listed on an Italian equity market. While in the short term such measures can increase investment, they do not directly tackle the underlying issue of limited attractiveness of such stocks, which is often linked to the low productivity of smaller Italian firms. In evaluating the effectiveness of the programs, the quantity and quality of patents, successful spin-offs, job creation and retention, market share gains, and digitalisation in targeted industries will be key indicators.
Creating markets for risk capital
Business angels, private placement vehicles, private equity funds and venture capital funds are generally better positioned than banks to finance technological innovation and productivity growth. They tend to invest in fast-growing companies with large market potential and disruptive business plans in sectors that heavily rely on intangible assets and innovative business models, such as ICT, healthcare and energy sectors. VC investors support nascent firms’ investment in R&D, technology, and international expansion through their expertise and reputation, connecting the firm to their networks or supporting technical and managerial training ahead of sale through stock exchange listing or to other investors (Michelacci and Suarez, 2004[14]). In Italy, these types of financing are relatively undeveloped, despite the sector’s rapid expansion over the past decade (Gallo et al., 2025[54]).
The development of deeper VC markets can support start-up creation and expansion. The sector has grown rapidly in Italy in the past decade with a five-fold increase in VC investments between 2011 and 2023 but remains much smaller than in other countries (Figure 4.14). In 2024, for example, the share of VC funding to SMEs amounted to 0.02% of GDP in Italy, compared to 0.09% in France and 0.12% in the Netherlands. Italy’s VC financing makes up only 4% of the total EU VC investments. The median size of VC investments in 2024 was around EUR 0.54 million compared to EUR 1.0 million in Spain or EUR 2.2 million in France. The small size of VC financing understates their returns to the broader economy (Poelhekke and Wache, 2023[17]). Italy’s under-developed VC market has often led innovative companies to relocate to other countries like the US, which offer a larger market and a more developed VC environment. VC financing is highly concentrated geographically in Italy, which brings the risk of accentuating geographical disparities. About half of the firms receiving credit through VC are in Lombardy and 76% in the Northwest.
Government interventions to support the development of the VC market or address regulatory barriers could help break the cycle. The tax treatment of capital gains or losses strongly affects the risk appetite and investment decisions of prospective investors. The design of tax incentives is, however, complicated by the need to strike a balance between promoting uptake and preserving investment quality without picking winners, for example through performance-related tax relief. To attract institutional investors into the VC market, Italy has recently introduced tax exemptions for social-security and pension funds that allocate a share of their portfolios (3% in 2025, 5% by 2026, 10% by 2027) to VC, with tax exemptions on capital gains granted for compliance, building on previous tax breaks (Decreto Economia). This measure is expected to support the development of VC markets, and its effectiveness can be enhanced by carefully monitoring costs, uptake and impact on risk exposure.
Venture capital investment, 2024
Source: OECD Venture capital investments (market statistics).
Recent regulatory measures to simplify the processes to establish new VC funds that are below the European size thresholds (AIMFD) are expected to aid market entry of foreign and domestic investors, improving the depth of the VC market. These measures are also expected to help diversify the market by attracting non-banking investors in VC, like pension funds, insurance companies and high-net-worth individuals (business angels), all of which are under-represented in Italy compared to other markets like France, the US or Spain (p101, n.d.[61]). Improved integration across capital markets in the EU would further contribute to attracting investment.
The recent increase in public direct investments could support the development of the VC market. This approach has long been followed in several other OECD countries in Europe, with direct public investments, government VC (GovVC) or asset management umbrella structures through which institutional investors like pension and insurance funds can invest. It is particularly suitable to fund innovation-driven firms that might otherwise not attract traditional VC investment, hence improving innovation output in terms of patents (Berger, Dechezleprêtre and Fadic, 2024[58]). The creation of a public investment arm of the Italian public investment bank CDP (Cassa Depositi e Prestiti CDP Venture Capital SGR, in 2019) aimed at boosting the native start-up ecosystem through direct VC investments goes in the right direction and evidence suggests it might have supported the recent partial catch-up in the size of Italian VC to other EU markets. Additional support to the development of VC markets in Italy may have come from the creation under the NRRP of dedicated VC funds managed by the Ministry of Enterprises and Made in Italy (MIMIT) to finance green and digital innovation (Green Transition Fund, Digital Transition Fund). The funds operate by providing direct or indirect support in the form of equity, quasi‑equity, debt, or quasi‑debt instruments. In 2024, direct public-administration investments accounted for about 22% of total VC fundraising in Italy, compared to 16% in Germany, where they are channelled through public development banks like the Kreditanstalt für Wiederaufbau (KfW), and 23% in France (OECD, 2025[12]), mostly through the Banque publique d'investissement (BPI, see Figure 4.14 Panel B). Including the subscriptions of public investment funds sponsored by CDP, this share rises to nearly two‑thirds of the total VC fund raising. To limit exposure to risk and issues of conflicts of interest, public investments can be limited to a minority share in participated funds and companies. A rigorous assessment of the realised returns of past public investments and their effects on the size of the VC market and the dynamics of firms receiving investments can inform future investments decisions and selection criteria. Focusing future investments on growth- and late-stage development will improve the support to business scale-up.
Italy generally offers limited opportunities for VC investors to profitably liquidate their positions through acquisitions, buyouts and IPOs. This is in part due to the small size of the market, which has fewer large investors and firms potentially interested in acquiring start-ups, and in part to structural barriers. Barriers include complex exit procedures and approval requirements, administrative delays and high costs of compliance that hinder exits. The new cooperative compliance model, whereby financial firms can obtain advanced assessments from the Bank of Italy and the financial markets regulator, Consob, on transactions they are considering, is a good step in this direction and is expected to help reduce compliance costs and legal uncertainty (Reuters, 2025[69]). Strengthening public equity markets will also improve exit opportunities for VC investors, as suggested by empirical studies (Michelacci and Suarez, 2004[14]). This could also improve the attractiveness of VC for firms seeking financing, as an exit through public offer (IPO) allows the entrepreneur to regain independence and control of the company, as opposed to the VC investor exiting through selling the business to a larger competitor (Schwienbacher, 2008[51]).
Low innovation spending and gaps in efficiency undermine firms’ productivity and competitiveness. Despite an increase of nearly 40% since 2014, the number of patents posted by Italian residents still lags comparable statistics for other large economies. Between 2000 and 2020 only 6.6.% of all EU patents were Italian (EPO, 2024[21]). Investments in intellectual property, including R&D and ICT, remain among the lowest across the Euro area in all sectors and especially in the information and communication technology industry, where they are central. Gross domestic expenditure on R&D amounted to only 1.4% of GDP in 2024, one of the lowest values across OECD countries, where the average is 2.7% (Figure 4.15). One of the main factors explaining low investment in innovation is the small share of large firms, yet at the same time firms of all sizes spend less than comparable firms across the OECD. Large firms, which employ less than 24% of all employees, account for over 44% of all R&D expenditures, followed by universities (25%) and the public sector (14%) in 2022 (ISTAT, 2023[70]). Focusing on business R&D, over 80% of total expenditure is undertaken by firms belonging to multinational corporations.
Business R&D investments are concentrated in sectors and technologies where they have lower disruptive potential. For example, while most Italian firms invest in green innovation, this is often in waste management and recycling, which can improve environmental outcomes and efficiency but have a lower impact on productivity and production processes. Across economic sectors, the highest R&D investment between 2023 and 2025 was in sectors producing motor vehicles, machinery and other transport equipment (with these three sectors accounting for nearly 40% of total business R&D investment), electronics, IT and pharmaceuticals. Revising the structure of public support in favour of direct grants and patent boxes may help direct investment towards innovation.
Source: OECD Main Science and Technology Indicators (MSTI database).
4.5.1. Directing public support to innovation
Public support to R&D is low in Italy at 0.09% of GDP, compared to 0.23% across OECD economies (Figure 4.16, Panel A). Increasing public support to R&D, especially in terms of direct investment, could have positive crowding-in effects by attracting private investments. On average across OECD countries, one euro of either tax or direct support is estimated to result in EUR 1.40 worth of business R&D (Appelt et al., 2016[56]).
Note: The implied marginal subsidy rates specify the notional level of subsidy (pretax) on one additional unit of R&D outlay. See source for details.
Source: EC, 2024; and OECD R&D tax expenditure and direct government funding of BERD.
Public R&D support in Italy, more than in other OECD countries, is mostly paid out in the form of expenditures-based tax incentives (Transizione 4.0, Transizione 5.0). For example, in 2023 tax incentives accounted for 64% of total government R&D support in Italy, and 58% on average across OECD countries. As there are advantages to both direct support and tax incentives schemes, a more balanced mix of the two could improve the effectiveness of public spending on R&D. Compared to other forms of support like direct grants, tax incentives are easier to administer and leave firms more flexibility in the choice of projects, with good results in term of increased R&D expenditures (Appelt et al., 2016[56]). However, the flexibility comes at the cost of a limited ability to target the incentives to the desired projects and firms. When R&D support is paid out in the form of tax incentives, it tends to be used to expand existing processes and so-called experimental development rather than funding new applied research, which is virtually unaffected by tax incentives and responds better to directed support (OECD, 2024[34]).
R&D tax incentives risk benefitting incumbent larger firms more than newer, smaller, credit constrained enterprises (OECD, 2024[34]). The reason why smaller firms tend to benefit less from R&D tax incentives is that they may face challenges mobilising the necessary know-how and financial and human resources to scale up their R&D activities and benefit from tax incentives. Larger firms, which tend to invest more in R&D, therefore often end up receiving a larger share of R&D tax incentive funds than smaller firms, in Italy as well as in most other OECD countries. To incentivise the participation of smaller firms, many OECD countries offer them specific targeted tax incentives or grant more generous supports on smaller investments (see Box 4.2). From 2021 to 2024, public support to R&D and investments was mostly delivered through the Transizione 4.0 scheme and the related Credito d’Imposta Investimenti in Beni Strumentali. In 2024, the Italy added the Transizione 5.0 scheme, offering tax credits to firms that undertook investments to reduce their energy consumption, including investments in personnel training, software, and physical capital in 2024-2025. Depending on the projected reduction in energy consumption, the tax credit could be as high as 45% on investments up to EUR 10 million and 15% on larger investments, irrespective of the size of the firm. To address the initially low take-up and better support green investments, the eligibility requirements, application process and other details of the scheme were revised through 2025. Despite the generally high take-up, this delay might have induced some enterprises, especially among the most credit constrained ones, to postpone investments. In designing future schemes, closer consultations with representatives from the business sector could reduce ambiguity and help reduce the needs for late adjustments. The 2026 Budget Law substitutes the Transizione 4.0 and 5.0 tax credit schemes with a super amortisation scheme, which is expected to favour firms running a larger profit and those subject to higher tax rates. Targeting support to smaller firms and start-ups, granting them higher tax credit rates or allowing the possibility of rolling unused credits over to subsequent years would help support their investments and R&D activities more effectively, and stability in the support measures would enhance their effectiveness.
Effective tax incentives
Across the OECD, 23 countries spend more on tax incentives to R&D than on direct R&D funding (2024 data from OECD INNOTAX portal). Effective tax incentives schemes tend to offer refunds for companies that lack sufficient tax liabilities, such as start-ups and credit-constrained firms, which tend to be very responsive to such schemes (OECD, 2024[34]). Tax support should be relatively easy to administer and compliant with trade and competition rules that regulate the use of state aid. Several countries, like Canada and the United States, have provisions to target directly SMEs, or, like Australia and Iceland, provide higher tax credits. In 2024, SMEs received on average a 19% tax subsidy on R&D expenditures, compared to 16% for large profitable firms.
Effective public support to R&D beyond tax credits
Direct funding through grants, subsidies, and R&D contracts can complement tax incentives and be more easily targeted towards specific sectors and technology areas. It can better support early-stage research and radical innovation with uncertain commercial outcomes, which tax incentives may not adequately encourage. In Italy, direct funding to business R&D is very low (Figure 4.17). Many OECD countries have established large programs to directly fund R&D activities. For example, in Finland, the Business Finland programme provides grants typically reaching 50% of project costs (40% for midcap and larger firms) or low-interest loans up to 70% of costs (50% for midcap and larger firms). Larger companies receive lower grants (up to 40% of project costs) and loans (50% of costs) and can obtain more generous support if they create consortia with Finnish SMEs or midcaps.
Direct funding of business enterprise expenditure on R&D (BERD), 2023
Source: OECD R&D Tax Incentives Database, https://oe.cd/rdtax.
Redirecting parts of the public innovation supports to direct grants and loans could improve the cost-effectiveness of public support to R&D. Direct grants and subsidised loans tend to work best for larger higher-risk projects with higher potential to lead to disruptive innovation (Appelt et al., 2016[56]), as they partially shield businesses from the risk. In addition, these instruments can be more directly targeted to areas of interventions and to projects that are perceived to have higher potential disruptive effects.
Support measures have been changing frequently in Italy over the past decade. On the one hand, this reflects an effort to progressively learn from experience, respond to transient shocks and improve targeting. On the other hand, fragmentation and excessively frequent changes in support policies, subsidies and eligibility criteria make participating in the schemes more costly for firms and administrative processes more burdensome for authorities. This may deter firms, especially smaller ones, from taking up the programmes (OECD, 2025[2]; Dlugosch et al., 2025[76]). In addition, using temporary subsidies as an ongoing, recurrent solution may distract from the need to tackle the underlying structural issues. Assessing the effectiveness of existing and new proposed R&D funding programmes in terms of investments, patents and value added, rather than solely take-up and disbursement, would help guide the design of future measures. The estimated compliance and administrative costs should be also included in the evaluation in order to assess whether the support measures may be too cumbersome or fragmented and whether excessively frequent changes in policies may be holding back investments.
4.5.2. Strengthening firms’ links to universities and building clusters
Italian universities and research institutions perform strongly in fundamental research yet struggle to translate this into commercialised innovations and patents (Figure 4.18). In 2022, for example, they contributed 2.7% of all scientific publications globally and 15% within the EU (European Commission, 2024[66]), including in innovative fields like biotechnology. However, Italian universities struggle to attract and retain researchers in many scientific fields and especially in the ICT field, where in 2022 there were fewer researcher than in 2018. The NRRP funds allowed universities to temporarily reverse this trend by hiring around 12 000 extra fixed-term researchers. The Budget Law for 2026 allocates EUR 50 million to co-finance the stabilization of these fixed-term contracts. Ensuring that sufficient funds continue to be allocated to keep attracting and retaining researchers will be key to maintain the progress made and avoid jeopardising the returns to the NRRP investments (CNR, 2025[59]). Developing a concrete strategy to extend the contracts of successful researchers currently employed on temporary contracts or make the contracts permanent would help maintain the competitiveness of Italian research centres and universities and support research and innovation activities.
Source: World Bank WDI; and OECD Analytical database.
Supporting effective and structured partnerships between universities and local industry can accelerate innovation transfer, help existing firms improve their performance and scale-up, promote the formation of start-ups, and attract private investment and talent. This can have positive spillovers to the local economy and labour markets as is already happening, for example, for the pharmaceutical sector in some northern areas and for the semiconductors in Sicily. To strengthen the synergies between the research ecosystem and businesses, the Ministry of University and Research has actively engaged private companies in the definition of new research and innovation programmes and has introduced a system of Key Performance Indicators (KPI) to assess their impact on society. The NRRP funds have allowed Italy to fund thirty public-private partnerships projects for a total investment of more than EUR 4.5 billion and to invest in thirty-three research infrastructures and sixteen innovation infrastructures. The 2025 Budget Law allocates adequate resources for 2027 and 2028 to ensure the continuity of these projects. Enhancing the effectiveness of these partnerships will however require a comprehensive and coherent reform of universities’ regulatory frameworks, organisational structures, governance arrangements, and career incentives.
Despite recent initiatives to reform the university system, structural and organisational barriers continue to impede universities’ engagement with local businesses through innovation clusters. Collaborations are hindered by universities’ administrative procedures, which vary between institutions. More flexible university regulations may ease collaborations and knowledge exchange, boosting universities’ role as catalysers of innovation and providers of highly specialised expertise and facilities. Academics and researchers used to have very strong property rights protection in Italy, limiting the economic attractiveness of industry-academic cluster for firms. The 2024 reform of the industrial property code, which limits this distortion in line with Italy’s NRRP commitments, is expected to significantly boost collaborations and support innovation. The structures put in place to access NRRP funds, in large part funnelled through regional governments, could serve as a longer-term model for collaborations between larger universities and local public administrations or even with private businesses. For example, many larger universities have set up ad hoc legal frameworks and simplified procedures and hired and trained dedicated administrative staff. At the same time, the low participation of smaller universities underscores the need to build up their administrative capacity and set up effective technology transfer offices. Business-university partnerships can be strengthened by expanding the use of these simplified procedures and creating dedicated offices at the regional level to support smaller universities in technological transfer, communication, legal support and partnership, possibly with a coordinating authority at the ministerial level (OECD, 2024[47]). Networks of smaller universities in remote areas could be created to share resources and knowledge, like the German University Excellence Consortia.
The laws and policies governing the ownership of intellectual property rights generated with public research funds (such as the US Bayh-Dole Act) are key in driving research-based innovation and determining its profitability. The recent transfer to universities and research centres of the ownership and rights to intellectual property generated by publicly funded research (abolishing the so-called professor’s privilege) is expected to facilitate the transfer of new technologies to the production system. The new regulatory regime provides greater legal certainty for firms interested in exploiting research results, lowers transaction costs for partners and encourages more formal and efficient channels for knowledge and technology transfer. These improvements could be complemented by strengthening the legal protection for forms of intellectual property applicable to non-technological innovation, such as trade secrets to protect industrial know-how.
While the National Industria 4.0/Transizione 4.0 plan involved significant investments to support industry-university collaborations, the plan was rather complex and fragmented, limiting its effectiveness. The plan led to the establishment of eight competence centres (partnerships among universities and local firms offering training and information to firms, specially SMEs), 277 digital innovation hubs (local entrepreneurial associations initiatives to support the adoption of new digital technologies) and 89 digital points for firms (similar to the digital innovation hub, but ran by local Chambers of Commerce and covering not only digital but also green technologies). The effectiveness of these structures can be improved by promoting their strategic coordination, at the local and national level. If these structures are deemed strategic and impactful, their involvement could be considered among the eligibility criteria for the award of public funding.
University researchers often still lack the career incentives to engage in commercialised innovation. Hybrid careers between universities and the surrounding economy for researchers, managers and administrators can improve such incentives, strengthen the managerial structure of public universities, and facilitate collaborations with the local economy. In Italian universities, the lack of recognition and career incentives for university personnel involved in knowledge exchange and collaboration activities hinders collaborations (see the OECD ITA.CON Survey and Interviews, 2022). Many recent measures, like the reform of the external evaluation body (ANVUR), the requirement to include external non-academic members in university boards and the creation of industrial and innovative Ph.D. programmes can help in this direction. The reform of the external evaluation body should strengthen the effectiveness of funding programmes and the use of performance-based incentives. The PhD programmes are co-designed and co-funded by universities, regional governments and local enterprises and can be a way to foster collaboration and incentivize researchers and universities to engage in commercialised innovation. While the participation of smaller firm has so far been limited, the increase in public funding, introduced in 2024, is expected to help by reducing the initially high participation costs. Other steps aimed at strengthening universities’ and researchers’ incentives to engage in commercialised innovation are the creation, in 2022, of new research positions that may be co-funded by private entities and the extension of the eligibility for public research investment to private companies and no-profit bodies (2026 Budget Law). There is scope to assess the effectiveness of all recent programs and involve industry, students and academic representatives in improving their design.
Several policy actions have been undertaken in recent years to support basic and applied research by attracting and retaining academic talent. For instance, Italy has launched a series of direct calls to appoint distinguished scholars, identified among the leaders of highly qualified research programmes or among the winners of excellence projects. The effectiveness of such measures can be strengthened through general improvements in the research ecosystem and funding.
Public funding can foster innovation by encouraging universities to engage with businesses and broader society. Public funding to universities is in large part (70%) based on their expenditures, to a lesser extent on their teaching and research outputs and only minimally (1.5%) on their knowledge exchange performance, despite an increase in 2025. This limits the incentives for universities and their staff to invest budget and time in development, joint projects, and outreach activities compared to a more balanced approach, such as the UK REF. Undergoing changes in the criteria and procedures for the evaluation of research quality (VQR 2020–24) are expected to increase the incentives for universities and research entities to engage in technology transfer. The Industria 4.0 plan and the NRRP M4C2 “From research to business” pillar increased the investments in competence centres, national digital innovation points and technological hubs connected to universities and in scholarships, grants and equity funding for start-ups, projects led by young researchers and university-industry partnerships. However, the implementation of NRRP projects in R&D is lagging behind its schedule, with only 16.6% of the funds spent by July 2024. While the impact of such investments in terms of research output, patents and innovation should be carefully monitored, the key challenge will be the identification of the most promising projects in terms of their potential to generate jobs and income. Competitively assigned public-sector projects, such as the German Fraunhofer-Gesellschaft, can provide an additional form of innovation-enhancing funding.
4.5.3. Accelerating the adoption of digital technologies, including AI
While Italy has made consistent progress in adopting digital innovation, the progress so far has been mostly driven by the public sector, with a lag in the private sector. The adoption of digital technologies by business remains relatively low, as captured for example by Eurostat’s index of digital intensity, which measures the use of different technologies (including e-commerce, internet, e-business processes, cloud computing, robotics and data analytics) by enterprises. Among Italian firms with more than 10 employees, around 29% have very low digital intensity, compared to 26% in the Euro area (Figure 4.19). Recent progress in terms of development of digital infrastructure, roll-out of optical fibre connections and the digitalisation of public services is expected to bolster private enterprises’ adoption of AI and digital technologies. The key drivers of low digitalisation in Italy however lay in the lack of workforce and managerial skills and the low investment in complementary intangible assets, especially among micro and small firms (Calvino et al., 2022[32]). To support adoption, targeted tax incentives for training and investments (Digital Transition Fund and Transizione 4.0) should be complemented by direct measures to boost workers and managers skills, in line with Italy’s 2024-2026 Strategy for Artificial Intelligence.
Enterprises with very low digital intensity index, %
Note: The definitions for the two periods are not the same, allowing for a comparison across countries but not across time periods. Firms with 10 employees or more, all activities (except agriculture, forestry and fishing, and mining and quarrying), without financial sector.
Source: Eurostat (isoc_e_dii).
Despite the relative lag in AI adoption, Italy has a good potential to reduce the gap with the top performing OECD economies thanks to high volumes of AI-related scientific publications and investments. In 2024, Italy was ninth in the world and fourth in Europe for total number of AI-related scientific publications, and around the OECD and EU averages in publications per capita. Italy is among the global leaders in strategic technologies like semiconductors and quantum computing, with large investments in high-performance computing (HPC) and quantum technologies and five active supercomputers. The establishment of research clusters can bolster the effective exchange of knowledge and the collaboration between industry, academia and research centres. In mid-2025, the volume of total AI investments, mostly by large firms and public institutions and mostly in data and equipment, was about double the EU average, also thanks to EU New Generation Recovery and Resilience Facility (NGEU RRF) funding. Improving the skills of managers and the general workforce will be key to ensure that these investments contribute to upgrading technology and practices.
In smaller firms AI adoption has been relatively low so far (Figure 4.20) and mostly aimed at preventing digital attacks, rather than, for example, automating productive processes, machinery maintenance or logistics. The OECD/BCG/INSEAD Survey of AI-Adopting Enterprises finds high costs to be the main obstacle to increasing adoption of AI technologies in smaller Italian businesses. Public support, R&D and digitalisation tax incentives can help businesses overcome this challenge. For example, Luxembourg has supported the adoption of digital technologies in SMEs through vouchers, while Germany supports the adoption of digital technologies in SMEs through various hub initiatives (e.g. Mittelstand-Digital), loans and other innovation or investment funding schemes.
Note: Panel B reports the number of fractional publications. For details see https://oecd.ai/en/elsevier.
Source: OECD ICT Access and Usage by Businesses database; and OECD.AI (2025), data from OpenAlex, last updated 2025-09-30, https://oecd.ai/.
Adoption of other digital technology is mixed. The latest available figures of the European Commission Digital Economy and Society Index (DESI) data, for 2021, highlighted high adoption rates of cloud services and high use of e-invoices, the latter also due to legislative obligations. At the same time, fewer than one-in-ten firms use big data and while e-commerce sales represent about 14.0% of total turnover compared to the EU average of 12.4%, the share of SMEs selling online is among the lowest across large EU countries at 14.7%, well below the EU average of 20.1%, despite the expansion induced by the Covid-19 pandemic.
Management quality and workforce skills in Italy appear to lag many other OECD countries, and they are generally lower in smaller Italian firms than in larger ones (Figure 4.21). This holds back innovation, business expansion, and productivity gains. For example, only 16% of Italian workers have high ICT skills, compared to about 30% in Germany and France. The relatively low qualifications of managers reflect the lower average educational attainment of adults in Italy compared to other OECD countries. The emigration of many young and high skilled workers in search of better job opportunities further depletes the talent pool (Chapter 2). Strengthening the skills of managers could boost their ability to lead companies to economic success and promote a learning culture, encouraging staff training and using the workforce skills effectively.
The adoption of good managerial practices can complement workers’ and managers’ skills. Italian firms lag their peers in the US and Germany in using well-established managerial practices, especially in people management. For example, the systematic evaluation and rewarding of employees’ performance is less common and often not built in the organisational structure, especially in SMEs. Raising managerial skills and practices to the OECD median could reduce skill mismatch in Italy by around seven percentage points and improve labour productivity by 2.5 percentage points (Adalet McGowan and Andrews, 2015[55]).
Management efficiency scores, 2015
Note: Panel A shows the 5th, 25th, 50th, 75th and 95th percentiles. The sample includes only medium and large firms with 50 to 5000 employees. Panel B only shows data for Italy.
Source: World Management Survey.
4.6.1. Addressing the workforce’s skill gaps
Italian workers’ literacy, numeracy and adaptive problem-solving skills lag most high-income OECD countries (Chapter 2), according to the 2022-23 wave of the OECD Survey of Adult Skills (PIAAC). In particular, 46% of adults struggle with multiple steps or complex problems, with even higher percentages among the older cohorts. For cohorts already interviewed a decade earlier, individuals’ scores have significantly deteriorated. This highlights the importance of strengthening the education and training system. Despite the significant progress made over the past decades, Italy still has one the lowest shares of tertiary-educated individuals in the OECD, and a vocational education system in need of further expansion (Chapter 2). Skill gaps not only affect productivity, but can also limit innovation and technological adoption, including in the digital, AI and green domains, potentially hindering Italy’s competitiveness in these growing sectors. Italy is particularly committed to invest in the skills related to the development and use of quantum technology, AI, HPC, and CHIPS. To this end, it has created an intra-ministerial board and developed a broad roadmap (Italian Strategy for Quantum Technologies) guiding its investment in basic and applied research, laboratories, feasibility studies and various innovative projects spanning from aerospace and AI to supercomputers.
Meanwhile, there is a large mismatch between firms’ skill needs and the education and training adults complete, contributing to low labour productivity. A smaller share of the workforce has graduated with STEM subjects or have ICT and digital or green skills than in most OECD countries and the share of the population that has basic digital skills is strikingly low at around 46%. In recent business surveys, 25.5% of Italian companies (just above the OECD average) report facing severe labour shortages (Filippucci et al., 2025[42]), with higher shortages in the northern, higher labour productivity regions. Mismatches include both overqualified and underqualified workers, which correspond respectively to 18% and 22% of all workers, compared to 16% and 19% across the OECD (Figure 4.22). While in the medium term the labour market and educational policies discussed in Chapter 2 (including the expansion of ITS Academies, vocational education and apprenticeships) can help address skill shortages, the short term calls for complementary measures.
Note: Panel B: Participation rate of employees in education and training (last 4 weeks).
Source: Job Creation and Local Economic Development 2024 - Country Notes: Italy | OECD; and Eurostat (trng_lfs_07).
An increase in adult training can help adapt the skill sets of older adults to the changing needs of employers and society. In 2015 adult training participation was so low in Italy that a back-of-the envelope simulation suggests that increasing it to the OECD median would significantly reduce the skill mismatch by 6 percentage points and increase productivity by about 2 percent (Adalet McGowan and Andrews, 2015[55]). In 2024, about 11% of adult employees participated in education or training in Italy, about half the EU-OECD average (Figure 4.22). Across educational levels, the lag in participation with respect to other EU countries is largest among the low educated and lower skill occupations. The size distribution of Italian firms plays again an important role in explaining the gap in training participation and supply with respect to other European countries. Not only is the provision of training in SMEs lower than in larger firms, but the gap in participation between workers in small and large firms is large compared to many other EU-OECD countries (Figure 4.23).
Italian workers indicate high costs and scheduling conflicts with work (especially men) or family (mostly women) commitments as the main obstacles to training participation (Cedefop/ISTAT Adult Education Survey). Subsidised training delivered in close collaboration with the employer could mitigate both obstacles. The introduction, in 2003, of Joint Interprofessional Funds for Continuing Education (Funds in short) was a first step in that direction. The Funds are promoted by employer organisations and trade unions and partially funded through compulsory employer contributions (0.3% of payroll). The impact so far has been limited: 3‑in‑4 businesses do not belong to any Fund, and the Funds are often used to finance compulsory safety and health training, with little impact on productivity-enhancing skills (OECD, 2019[77]). France has a similar system, but the levy on employers, which is higher than in Italy especially for larger firms, is used to fund individual learning accounts and businesses must also provide training leave. The higher levy implies higher funding and stronger incentives for firms to design and offer relevant training, and the mandated training leave supports employees’ participation in the scheme. The share of firms offering vocational training to their employees and the share of participating employees are both higher in France than in Italy. The effectiveness of the Funds in Italy could be improved by increasing public funding and employers’ contributions and forbidding their use to fund compulsory training. In addition, providing more modular courses might help address the scheduling conflicts and high costs barriers, making it easier for a wider number of employees to participate. The need for flexible, personalised and certifiable training programs is explicitly recognised in the new guidelines for the Interprofessional Funds, published in 2026. In this respect, the launch of the public e-learning platform EDO, which offers users the possibility to acquire specific job-oriented skills and obtain a certification, could help support participation to training.
The effectiveness of, and access to, adult training programs could be enhanced by improving the presence of employment services offices through the territory, especially in the South and rural areas. Ongoing reforms of adult training programmes aim to provide more accurate and accessible information concerning available training options. Funding workers’ training directly through vouchers, subsidies, and individual learning accounts (along the lines of the French CFP and Dutch STAP schemes), rather than funding training providers could boost participation. Funding employees, or selected categories, rather than employers is also generally associated to lower deadweight loss (OECD, 2019[63]). Cost-effectiveness, efficiency and responsiveness to changing demand can be improved by better matching learners and programmes, prioritising the skills required in occupations affected by labour shortages as in the Austrian Arbeitsstiftungen and strengthening the quality assurance processes. The recent creation of an information system and of a multi-purpose platform (SIISL and AppLI, discussed in Chapter 2) could enhance the matching of workers and jobseekers to training opportunities.
By reducing participation costs, training subsidies targeted to lower educated workers in smaller firms can help improve the availability and take-up of training and reduce skill gaps. In recent years, Italy has improved targeting to SMEs. For example, the tax credits offered to businesses to partially cover the direct costs of training and the indirect costs for foregone hours of work are generally higher for SMEs (Credito d’Imposta Formazione 4.0, Formazione 5.0, Fondo Nuove Competenze). The targeting has so far not been effective. For example, the take-up of the Fondo Nuove Competenze between 2021 and 2023 was high but participation was skewed towards medium and large firms (ANPAL, 2023[44]). Individual learning accounts could be more effective to the extent that they can more easily be targeted to selected categories of workers who tend to participate less in training, like women, older workers and those with lower qualifications and educational attainments.
Share of employees participating in vocational courses by enterprise size class, 2020
Note: The chart shows the share of employees participating in continued vocational training (CVT) courses in firms with at least 10 employees.
Source: Eurostat (trng_cvt_12s).
Skills anticipation activities can provide information on current and expected future skills needs and guide students, education providers, employers and workers make education, training or employment related decisions. Advanced intelligence tools can be used to collect granular, timely data on regional occupations and skills demand and present data-driven insights about trends in skills demand in an easy to access way for schools, universities and workers of all ages and skill levels. Existing national and local platforms could serve as a starting base (for example, Excelsiorienta, Almalaurea). The data could also help identify the root causes of shortages and guide the design of targeted, place-based skills and labour market policies to ease the shortages.
Despite the general shortage of skilled workers, immigrant workers’ skills are underused, reflecting both formal barriers, such as recognition of foreign qualifications, and informal barriers related to language and cultural adaptation (Figure 4.24). In 2024 Italy had the second lowest share of migrants with a university degree across the EU-OECD economies, less than 12% compared to 28% in the EU27. Improving the recognition of foreign qualifications could help make better use of the skills of foreign-born workers. For instance, Belgium adopted a digital application process, cutting down the processing times for the recognition of foreign qualifications from several months to a few weeks. Norway’s fast-track service automatically recognizes qualifications earned in partner countries, and assesses the qualifications earned in other places within five working days. Italy’s recent efforts have rather focused on the creation of pilot programmes, co-funded by employers, to identify, train and certify third country nationals in their country of origin before offering them a working visa to take up employment in Italy. This strategy can complement other efforts, although it does not help make better use of the foreign workers who are already in Italy, and it does not offer a direct short-term solution to the shortage of skills in Italian firms.
Participation to open calls for positions in Italian universities or public administration bodies often requires an Italian university degree. To participate, applicants with foreign degrees and qualifications are required to obtain their formal recognition. Recognition of foreign earned university degrees (equivalenza) can be lengthy, costly and complex as it often requires the applicant to obtain sworn and certified translations of academic documents. Alternatively, an individual who has obtained a degree abroad can apply at a university of their choice to obtain a degree of the same level (equipollenza), the validity and value of which clearly extends beyond single recruitment procedures, yet this often requires enrolling in the university and taking some exams, with considerable costs and delays. Processing times and administrative fees vary significantly across universities, with overall costs, including sworn translations and fees, ranging from a few hundred to over one thousand Euros. While some recruitment mechanisms, like direct calls, allow universities to work around this issue, they do not directly address the underlying complexity of the recognition procedures and the resulting economic inefficiencies. A decisive simplification of the procedures for the recognition of foreign earned university degrees, including by better leveraging digital technologies, would support Italian universities and research centres in their ability to attract talent. Careful design and supervision will help maintain robust safeguards and limit the risk of frauds.
Overqualification rate, employed individuals with higher education, 2021 or latest year
Source: OECD/European Commission (2023), Indicators of Immigrant Integration 2023: Settling In.
4.6.2. Improving managerial quality
The relatively low quality of Italian management is likely to significantly constrain firm performance. Inefficient management practices have been estimated to account for around 30% of total factor productivity (TFP) dispersion across manufacturing firms across and within countries (Bloom, Sadun and Van Reenen, 2016[23]). The OECD Survey of Training SMEs finds that firms led by a tertiary-educated CEO are more likely than others to innovate and to invest in intangibles and in R&D. This amplifies the productivity effect of good managers during periods of fast technological innovation. For example, managerial inefficiencies have been estimated to explain up to 28% of the productivity gap between Italian and German firms between 1995 and 2008, as lower managerial efficiency in Italy resulted in lower returns from IT technologies and lower adoption (Schivardi and Schmitz, 2019[24]). According to other studies, Italy’s low propensity to hire, promote and reward managers based on merit could explain up to 73% of its TFP growth gap between and 1996 and 2006 (Pellegrino and Zingales, 2017[50]).
Almost 90% of firms report difficulties in recruiting managers with the right skills, especially soft skills and leadership (OECD, 2021[25]). While improving participation in higher education could help, the age composition of the workforce and of managerial occupations calls for targeted training to address the shortage of managerial and leadership skills. Managers tend to have lower formal dedicated training and skills development in Italy than in France, Germany, and the UK, especially in SMEs. For example, only 39.6% of Italian managers reported receiving training in the OECD PIAAC 2023 survey, compared to 70.5% across the OECD, and to 44% across EU countries in a similar Eurostat survey (Figure 4.25). This could be linked to the high share of small firms, where access to training is generally lower, due to lower cost-effectiveness, stricter time or liquidity constraints, and lower know-how or managerial capacities. Beyond general training, experience across OECD countries suggests that managerial skills can be improved through subsidised certifiable management education programs for SMEs managers, including through public e-learning platforms (such as Akademia PARP in Poland), and one-to-one mentoring programmes (UK’s Help to Grow: Management programme), where the latter help managers identify and address their skills gaps. Managerial training and shadowing programmes can ease technology adoption and have long-lasting effects on productivity. For example, Italian firms participating in the US Productivity Program (1952-1958), whereby managers from Italian enterprises were offered machinery and management-training trips to the US, have been shown to perform significantly better than their peers in terms of productivity, employment and sales (Giorcelli, 2019[41]).
Limited financial literacy and skills can hinder business expansion. In recent surveys, micro-entrepreneurs demonstrate slightly better financial skills and abilities to select and use financial products and services than the general population, but lower than peers in other OECD economies (Banca d'Italia, 2022[82]). At the same time, the intermixing of owners’ personal and business accounts can complicate tax compliance and financial planning. In this context, the incentives to expand one’s business may be hindered by the fact that it would lead to higher levels of tax scrutiny and accounting complexity. Financial education training and technical assistance could support business expansion while also helping the transition to more digitalised business models, improving financial planning and strengthening the resilience to external shocks. In the context of the COVID-19 shock, for example, micro firms led by better financially educated entrepreneurs had larger liquidity buffers prior to the crisis and were better able to access government aid during the crisis (Banca d'Italia, 2022[78]).
The lack of external pressure that comes from using capital markets to finance firms, or from robust and responsive judicial systems contribute to weaker management practices. In weak institutional frameworks, companies’ success may depend on connections and loyalty more than on managerial talent. Managers hired and promoted based on loyalty and connections rather than merit are better able to navigate the financial and bureaucratic constraints of environments with relatively high degrees of informality and patronage (Pellegrino and Zingales, 2017[50]). As a result, well-connected managers can support firms’ survival or even expansion in employment and revenues, while failing to support productivity growth (Akcigit, Baslandze and Lotti, 2023[40]). Expanding capital markets and reinforcing the institutional setting would further incentivize the hiring of managers based on talent. At the same time, SMEs tend to prefer bank financing and are reluctant, especially among family-owned firms, to share ownership and control with external investors, contributing to a cycle of low VC demand, low VC supply and loyalty-based management.
Participation rate of managers in education and training (last 12 months) aged 25-54 years-old, 2024
Source: Eurostat (trng_lfs_25).
Only 40% of young people in Italy say that their school education helped them to develop an entrepreneurial attitude, compared to an EU27 average of 53%. Among entrepreneurs, financial literacy and digital skills are low, especially in micro firms (OECD/INFE survey). Improving management and entrepreneurial attitudes, skills and competencies in the population may ease the transition from loyalty-based to merit-based management and improve companies’ openness to innovation. For example, elementary financial education and more advanced digital competencies could be strengthened in school curricula.
4.6.3. Professionalising the management of family businesses
The adoption of professional management practices is particularly low in businesses that are owned and run by families. These represent 83% of all firms with fewer than 10 employees and a non-negligible share of medium and large-size firms (ISTAT Censimento delle Imprese, 2023). Family-owned businesses often recruit managers within the family or close network (loyalty-based or dynasty management) rather than recruiting external high-qualified professionals based on merit or qualifications, weighing on innovation and productivity (Bandiera et al., 2017[26]). Empirical studies link the prevalence of loyalty-based management to Italy’s poorly-functioning credit markets and weak legal enforcement (Pellegrino and Zingales, 2017[50]).
The generosity of the fiscal regime on inherited businesses incentivises generational continuity in ownership and management. Italy is one of five OECD countries where the inheritance of businesses by direct descendants is fully exempt from taxes (Legislative Decree 346/1990), provided the heirs maintain control and continue operations for at least five years. While many OECD countries have introduced preferential inheritance tax treatment for inherited businesses, this is usually limited to tax cuts, rather than complete waivers (OECD, 2021[62]). The tax waiver approach creates strong incentives to maintain control of family businesses and hinders business consolidation. Reducing the thresholds or the exemption or removing the requirement to maintain control for 5 years could reduce these distortions and favour mergers of micro and small firms and the adoption of professional managerial practices.
The ownership and control of some of Italy’s largest and most successful companies, such as in the automotive and food industries, accrue to the same individual or family, both among unlisted and listed companies. Legally independent firms are often controlled by the same entrepreneur through a chain of ownership relations, known as pyramidal groups. Pyramidal groups can relax financial constraints by sharing finances across the various companies in the pyramid. They are associated with lower management quality, especially if contestability of control is low, as in family-owned and controlled companies (Bianco and Casavola, 1999[27]). More developed capital markets, supported by stricter regulatory protection of minority shareholders’ interests such as in the common law regimes of the UK and US, can mitigate agency issues by encouraging dispersed ownership. Higher inheritance taxes on corporation and stronger enforcement of anti-trust regulations can provide further incentives to break up large pyramidal industrial groups.
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