Assessing the Macroeconomic Impact of Structural Reforms The Case of Italy

Abstract

Wide-ranging structural reforms are underway in Italy, aimed at addressing key bottlenecks in the product and labor markets. Our analysis, based on the IMF's Global Integrated Monetary and Fiscal model (GIMF), attempts to quantify the potential gains to the economy from a comprehensive package of structural reforms. We find that these gains can be sizeable. While in most cases, the reforms go in the right direction, their impact would depend on effective and timely implementation. In some areas, especially in the labor market, reforms would benefit from further strengthening. The priorities should be to strengthen competition in the non-tradable sector and make the labor market more efficient and inclusive, supported by growth-friendly fiscal reforms.

Resilient SMES, Institutions and Justice. Evidence in Italy

“…The effects of these reforms on the economic system will be seen in the medium to long term. The OECD simulations in 2013 and other analogous studies (Lusinyan and Muir, 2013) estimate that the complete application of the measures formulated would improve GDP growth by about 5 percentage points in a ten-year period. Nowadays, additional measures are necessary and should be aimed at reducing the administrative burdens on firms and simplifying procedures for starting firms activities.…”

The Policy Response to Macroeconomic and Fiscal Imbalances in Italy in the Last Fifteen Years

“…In some cases, their link with economic performance is very indirect; in other cases, they enhance potential output growth in the medium term and therefore the expected boost to actual growth may take some time to emerge. According to simulations run by the OECD (2013), full implementation of the measures already approved would stimulate GDP growth by about 5 percentage points in a ten-year horizon; the order of magnitude of the estimate by Lusinyan and Muir (2013) is similar, albeit for a five-year horizon. 30 In its National Reform Programme released in April 2013, the Government estimates a comparable long run impact of the adopted liberalisation and simplification measures.…”

Macroeconomic Effects of Simultaneous Implementation of Reforms

“…The lack of flexibility implies low productivity and employment in the long run and thereby does not support potential output. For example, Lusinyan and Muir () suggest that the existence of a strong incumbent in the energy sector and the presence of long‐term contracts can lead to high energy prices by limiting competition and discouraging investment. They also point out that restrictive regulations in professions can limit entry and conduct in the markets, and thus favour ‘regulated’ prices.…”