OECD ECONOMIC SURVEY OF ITALY 2019

Reviving growth and broadening its benefits 1 April 2019, Romewww.oecd.org/eco/surveys/italy-economic-snapshot/

@OECDeconomy

@OECD

Key messages

2

• A clear multi-year reform programme to boost employment and productivity, while reducing steadily the public debt ratio

Stronger, more inclusive and sustainable growth

• Strengthen work incentives through tax and social benefit reforms and improving public employment services

Tackling large social and regional divides

• Local administration needs strengthening and rationalising with better support and coordination from the central government

Better public investment and regional development policies

Italy performs well in health, social connections and work-life balance

OECD Better Life IndexRankings from 1 (highest) to 35 (lowest), 2017

3

Source: OECD (2017), OECD Better Life Index.

1417 18

21 22

28 2830 31 31 32

Wor

k-lif

eba

lance

Inco

me &

wea

lth

Socia

lco

nnec

tions

Healt

hst

atus

Civic

enga

gem

ent

Hous

ing

Subj

ectiv

ewe

ll-be

ing

Envir

onm

enta

lqu

ality

Educ

atio

n &

skills

Pers

onal

secu

rity

Jobs

&ea

rnin

gs

Italy20% top performers 60% middle performers 20% bottom performers

More jobs have been created and unemployment has fallen

Employment and unemployment rates

4* Persons aged 15-64Source: OECD Labour Force Statistics database.

55

56

57

58

59

60

4

6

8

10

12

14

2005 2007 2009 2011 2013 2015 2017 2019

%% Unemployment rate Employment rate

Banks are in better health

Banks’ return on assets and bad loan ratio

51. Data for 2018 refer to either Q1 (United Kingdom), Q2 (France and Italy) or Q3 (Ireland, Portugal and Spain), depending on data availability. Source: IMF Financial Soundness Indicators database; and Bank of Italy.

-1.0

-0.6

-0.2

0.2

0.6

1.0

1.4% 2013 2016 2017 2018¹

Return on assets

0

5

10

15

20

25

2011 2012 2013 2014 2015 2016 2017 2018

%Bad loans to non-financial corporations

as a share of banks' total lending

After a modest recovery, the economy is weakening amid persistent challenges

6

The economy had been slowly recovering but recently it has stalled

Source: OECD Economic Outlook 104 database, including more recent information.

Real GDP growth

7

-1.2-1.0-0.8-0.6-0.4-0.20.00.20.40.60.81.0

2010

Q1

2010

Q3

2011

Q1

2011

Q3

2012

Q1

2012

Q3

2013

Q1

2013

Q3

2014

Q1

2014

Q3

2015

Q1

2015

Q3

2016

Q1

2016

Q3

2017

Q1

2017

Q3

2018

Q1

2018

Q3

%, Q-o-Q

Growth will resume at a modest pace

Annual % change, unless otherwise indicated

8Note: p denotes projections for 2019 and 2020.Source: OECD Economic Outlook 104 database, including more recent information.

2018 2019 (p) 2020 (p)Gross domestic product 0.8 -0.2 0.5Private consumption 0.6 0.5 0.5Gross fixed capital formation 3.2 -0.2 1.1Exports 1.4 2.7 2.3Imports 1.8 2.1 2.7Unemployment rate (%) 10.6 12.0 12.0Fiscal balance (% GDP) -2.1 -2.5 -3.0Public debt (gross, % of GDP) 132 134 135Current account (% of GDP) 2.6 2.7 2.4

Real GDP is still well below its pre-crisis peak

Source: OECD Economic Outlook 104 database, including more recent information.9

90

92

94

96

98

100

90

92

94

96

98

100

2006Q1 2007Q1 2008Q1 2009Q1 2010Q1 2011Q1 2012Q1 2013Q1 2014Q1 2015Q1 2016Q1 2017Q1 2018Q1

Real GDP, Index 2008Q1 = 100

Italy is the only OECD country whereincomes are no higher than in 2000

10

% difference in real GDP per capita between 2000 and 2018

Source: OECD Economic Outlook 104 database, including more recent information.

-5

0

5

10

15

20

25

30

-5

0

5

10

15

20

25

30

BottomOECD -

ITA

PRT FRA JPN ESP CAN GBR USA DEU OECD TopOECD -

LTU

155

Productivity has stagnated

11

Real GDP per worker, 2007 = 100

Source: OECD Economic Outlook 104 database, including more recent information.

90

95

100

105

110

115

90

95

100

105

110

115

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Italy France Germany Spain Portugal

Poverty rose during the crisis,especially for the young

12

% of age groups living in households in absolute poverty

Source: ISTAT.

0

2

4

6

8

10

12

14

0

2

4

6

8

10

12

14

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

%% Below 18 18-34 years 35-64 years 65 years and over Total

North Centre South

0

5

10

15

20

25

30

1997 2001 2005 2009 2013 2017

Relative poverty rate, % of persons living in households in relative poverty

Italy’s large regional disparitieshave widened

13

Employment rate and relative poverty rate

Source: ISTAT.

35

40

45

50

55

60

65

70

1977 1985 1993 2001 2009 2017

Employment rate% of population, 15-64 year olds

Rising numbers of the youngare emigrating

14Source: ISTAT; Eurostat; and OECD calculations.

0

10

20

30

40

50

60

70

2002 2005 2008 2011 2014 2017

Italian emigrants by age groupThousand of persons

Until 17 years 18-39 years40-64 years 65 years and over

020406080

100120140160180

1970 1975 1980 1985 1990 1995 2000 2005 2010 2015

Italian emigrants Thousand of persons

Population ageing will soonshrink the workforce

15

Age groups’ share of population, %

Source: UN World Population Prospects database.

10

20

30

40

50

60

10

20

30

40

50

60

1980 1985 1990 1995 2000 2005 2010 2015 2020 2025 2030 2035 2040 2045 2050

Below 24 years 25-64 years 65 years and over

90

100

110

120

130

140

90

100

110

120

130

140

2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020

% %

High public debt poses risks andreduces fiscal options

16

Gross public debt-to-GDP ratio

Source: OECD Economic Outlook 104 database, including more recent information.

Reforms to enhance growth and well-being while reducing the public debt

17

-0.5

0.0

0.5

1.0

1.5

2.0

2.5

-0.5

0.0

0.5

1.0

1.5

2.0

2.5

2000 2005 2010 2015 2020 2025 2030 2035 2040 2045 2050

2018 policies

2019 policies

Recommended reform package

%%

A broad multi-year reform programmewould boost growth

Note: the recommended reform programme includes actions, among other things, to raise the efficiency of the publicadministration, introduce an in-work benefit scheme, strenghten active labour market programmes and additionalsupport for R&D spending.Source: OECD calculations.

18

Trend annual real GDP growth rate, %

Reforms to boost growth through higher employment, investment and productivity

% difference in level of GDP, relative to 2018 policies

191. Components do not sum to overall effect due to interactions between individual reforms.Source: OECD calculations

2025 2030 2040Activating workers:Raise active labour market spending per unemployed personby 130% by 2025

0.9% 3.7% 6.3%

More effective public administration and justice systems:Reform the public administration and justice system, to close half of the gap in ‘rule of law’ between Italy and the OECD average by 2030

0.2% 1.1% 4.4%

Reducing inequality and the labour income tax wedge:Introduce a moderate guaranteed minimum income scheme, in-work benefits, and reform social security contribution rates and tax credits

0.9% 2.4% 3.8%

Invest in innovation: R&D spending rises from 1.3% of GDP to 2.0% of GDP by 2025, near the G7 average

0.0% 0.1% 0.6%

Support labour force inclusiveness and participation:Raise in-kind family benefits, such as child and elder care, by 40% by 2030, to reach the OECD average

0.0% 0.2% 0.5%

Overall effect1. 2.0% 7.8% 16.2%

80

100

120

140

160

180

200

220

80

100

120

140

160

180

200

220

2000 2005 2010 2015 2020 2025 2030 2035 2040

2019 policies, OECD projections, 2% primary surplus

Recommended reform package + primary surplus at 2% of GDP

Recommended reform package + lower interest rates (spread declines to 100) + higher primary surplus(3.3% of GDP)

A larger primary surplus and the reform package would put debt on a downward path

Public debt, % of GDP

20Source: OECD calculations.

Set out a medium-term fiscal plan within the EU Growth and Stability Pact, aiming to steadily raise the primary surplus.

Reverse the changes in early retirement rules introduced in 2019.

Few payments are done electronically, abetting tax evasion and supporting informality

Non-cash payments, % of GDP, 2017

21Source: ECB.

0

1000

2000

3000

4000

5000

6000

0

1000

2000

3000

4000

5000

6000

ITA PRT ESP FRA DEU GBR Top OECD -CZE

Lower the maximum threshold for cash payments. Continue to improve voluntary tax compliance and avoid repeated tax amnesties.

Continue to improve coordination across tax administration agencies.

Removing obstacles hindering thegrowth of small, productive firms

would boost productivityLabour productivity, 2016 or latest available

22Note: Labour productivity is computed as value added per person employed, thousands of USD, current PPPs.Source: OECD Entrepreneurship at a Glance Highlights 2018.

0

20

40

60

80

100

120

0

20

40

60

80

100

120

BottomOECD - MEX

PRT ESP ITA DEU FRA GBR Top OECD -DNK

1-9 persons 10-19 persons 20-49 persons 50-249 persons 250 persons or more

Continue to pursue reforms to boost productivity including measures to improve the efficiency of the judicial system through improvements in administration processes and greater use of alternative dispute resolution.

Complete the reform of the insolvency regime.

Ensuring all regions have effective waste management can lift well-being

Source: ISPRA.

Waste management by region, % of total waste collection

23

0%

20%

40%

60%

80%

100%

0%

20%

40%

60%

80%

100%

Sicil

ia

Molis

e

Calab

ria

Pugl

ia

Basil

icata

Lazio

Ligu

ria

Cam

pani

a

Tosc

ana

Abru

zzo

Piem

onte

Valle

d\'A

osta

Umbr

ia

Marc

he

Sard

egna

Emilia

-Rom

agna

Friu

li-Ve

nezia

Giu

lia

Lom

bard

ia

Tren

tino-

Alto

Adi

ge

Vene

to

Recycling waste collection Non recycled waste collection

North

CentreSouth

Restructure operations relating to waste management of sub-national governments that repeatedly fail to reach targets for waste collection and recycling.

Main recommendationsA multi-year reform programme to enhance growth

and well-being while boosting fiscal credibility

Develop a multi-year programme of institutional, economic and social reforms and do not reverse important measures taken in recent years.

Boost fiscal credibility by setting out a medium-term fiscal plan within the EU Growth and Stability Pact, aiming to steadily raise the primary surplus.

Continue to pursue reforms to boost productivity including measures to improve the efficiency of the judicial system through improvements in administration processes and greater use of alternative dispute resolution.

Reverse the changes in early retirement rules introduced in 2019 and preserve the link between retirement age and life expectancy.

Abolish tax expenditures that are poorly targeted or have outdated objectives.

Restructure operations relating to waste management of sub-national governments that repeatedly fail to reach targets for waste collection and recycling.

More in ‘Key policy insights’

24

Addressing Italy’s socialand regional disparities

25

Social disparities are largeand follow regional lines

Source: ISTAT Regional database.

Value added per employeeEUR, 2016

26

Relative poverty rate% of persons living in households in relative poverty, 2017

Wide regional differences in employment rates drive income disparities

Note: Coefficient of variation in employment rates across regions, 15-64 year olds.Source: OECD Regional Statistics database. Eurostat data for France.

27

Dispersion of employment rates across regions*

0.00

0.05

0.10

0.15

0.20

0.25

0.00

0.05

0.10

0.15

0.20

0.25

SmallestOECD -

ISL

JPN DEU GBR CAN PRT ESP USA FRA LargestOECD -

ITA

Males Females

Employer social security contributions are high, stifling employment growth

Source: OECD Taxing Wages database.28

Average, % of labour cost, 2017

0

10

20

30

40

50

60

0

10

20

30

40

50

60

SmallestOECD-MEX

CAN GBR USA JPN OECD ESP PRT FRA ITA DEU LargestOECD -

BEL

Employer SSC Employee SSC Income tax

Reduce the labour income tax wedge on low-income workers and second earners by lowering employer social security contributions and tax and benefit reforms, while maintaining the tax system’s progressivity.

Transfers do not reachthe poorest households

Source: OECD calculations based on the OECD Income Distribution database.29

Transfers to poorest 20% of working age population, 2016

05101520253035404550

05

101520253035404550

LowestOECD -

GRC

ITA PRT ESP JPN FRA USA OECD CAN DEU GBR HighestOECD -

NZL

% of total transfers% of total transfers

The Citizen’s Income provides a large boostto poor households

Note: CI indicates “Citizen’s Income”, while REI indicates “Reddito d’Inclusione”.Source: Calculations based on OECD Tax-benefit model.

30

Net household income for households receiving guaranteed minimum income, % of median disposable income

0

10

20

30

40

50

60

70

0

10

20

30

40

50

60

70

Lowe

st O

ECD

-US

A ITA,

REI

PRT

CAN

ESP

OECD

aver

age

FRA

DEU

ITA,

CI

GBR

JPN

High

est O

ECD

-IR

L

Single Couple, 2 children

relative poverty line

ITA REI ITA CI ITA refom package 10th-90th percentile range of OECD countries

The Citizen’s Income discourages moving into low-wage work, especially in single-earner households

Note: CI indicates “Citizen’s Income”, while REI indicates “Reddito d’Inclusione”.Source: Calculations based on OECD Tax-benefit model.

31

Effective tax rate when moving into work, %

% of average wage % of average wage

-40

-20

0

20

40

60

80

100

120

10%

30%

50%

70%

90%

110%

130%

150%

Couple, 2 earners, 2 children

Strong work incentive

Weak work incentive

-40

-20

0

20

40

60

80

100

120

10%

30%

50%

70%

90%

110%

130%

150%

Single

Strong work incentive

Weak work incentive

The proposed reforms (tapering CI benefits, low-income in-work benefits, and reformed tax credits)

would boost incomes

Source: Calculations based on OECD Tax-benefit model.32

% gain in net income from the reform package relative to 2018 policies

Lower and taper off Citizen’s Income benefits to encourage beneficiaries to seek employment in the formal sector and introduce an in-work benefit for low-income earners.

-10

-5

0

5

10

15

20

25

-10

-5

0

5

10

15

20

25

0 20 40 60 80 100 120 140 160 180 200% of average full-time earnings

Single, 2 children Couple, 2 earners, 2 children

Low access to childcare in many regionsis a barrier to work

Source: ISTAT (2017) and OECD calculations

Childcare places, ages 0-2, per 100 children, 2014

33

Provide more quality infant care places at a low cost relative to average wages, prioritising regions with low female employment.

05101520253035

05

101520253035

Piem

onte

Friu

li-Ve

nezia

Giu

liaVe

neto

Tren

tino-

Alto

Adi

geLo

mba

rdia

Ligu

riaVa

lle d

'Aos

taEm

ilia-R

omag

naMa

rche

Lazio

Tosc

ana

Umbr

iaCa

mpa

nia

Calab

riaSi

cilia

Pugl

iaBa

silica

taAb

ruzz

oMo

lise

Sard

egna

North Centre South

Public structures Private structures

Strengthening public employment services is key to job creation

* Employees aged 25-64 who started a job during the previous 12 months, 2014 data. Source: OECD calculations based on EU-LFS 2014.

% of employees who found a job through public employment services*

34

0

5

10

15

20

25

0

5

10

15

20

25

Bottom OECD -ITA

ESP GBR DEU FRA PRT Top OECD -HUN

Implement a multi-year plan to revamp public employment services based on enforcing essential service standards and higher investments in IT systems, profiling tools and human resources.

Grant to ANPAL the power to restructure public employment services that repeatedly fail to meet commonly agreed performance targets.

Social services are weakwhere they are most needed

Source: ISTAT; Eurostat; OpenCivitas; and OECD calculations.35

Ensure capacity to administer the Citizen’s Income by building on and strengthening, where necessary, municipalities’ social assistance services and establishing strong collaboration with public employment services.

0

5

10

15

20

25

30

0

5

10

15

20

25

30

-60 -40 -20 0 20 40 60 80

North Centre South

Efficiency in social care provision, region average

Severe material deprivation rate, %High material deprivationWeak efficiency

Low material deprivationWeak efficiency

High material deprivationStrong efficiency

Low material deprivationStrong efficiency

Main recommendationsAddressing Italy’s social and regional disparities

Implement a multi-year plan to revamp public employment services based on enforcing essential service standards and higher investments in IT systems, profiling tools and human resources.

Grant to ANPAL the power to restructure public employment services that repeatedly fail to meet commonly agreed performance targets.

Ensure capacity to administer the Citizen’s Income by building on and strengthening, where necessary, municipalities’ social assistance services and establishing strong collaboration with public employment services.

Provide more quality infant care places at a low cost relative to average wages, prioritising regions with low female employment.

Reduce the labour income tax wedge on low-income workers and second earners through lowering employer social security contributions and tax and benefit reforms, while maintaining the tax system’s progressivity.

Taper Citizen’s Income benefits to encourage beneficiaries to seek employment in the formal sector and introduce an in-work benefit for low-income earners.

More in Chapter 1: Tackling Italy’s social and regional divide 36

Improving public investment and regional development policies

37

Public investment has slumped

Source: OECD Economic Outlook 104 database, including more recent information; and OECD National Accounts database.38

Simplify the most complex aspects of the public procurement code, but protect the powers of the anticorruption authority.

1.5

2.0

2.5

3.0

3.5

4.0

4.5

5.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

5.0

2000 2002 2004 2006 2008 2010 2012 2014 2016 2018

Italy France Germany United States

Government investment, % GDP

Perceived infrastructure quality is lagging

Source: World Economic Forum (2018).39

Develop a comprehensive public investment and spatial plan linking infrastructure developments with land use management.

Global Competitiveness Index, scale from 1 to 7 (best)

02468

Botto

m ITA

OECD GB

R

CAN

DEU

ESP

USA

FRA

JPN

PRT

Top

Roads

02468

Botto

m ITA

OECD PR

TFR

ACA

NES

PDE

UGB

RJP

NUS

ATo

pPorts

02468

Botto

m ITA

OECD PR

TCA

NFR

AES

PDE

UGB

RUS

AJP

NTo

p

Air transport

0

2

4

6

8

Bott…

ITA

CAN

OECD PR

TGB

RFR

AES

PDE

UUS

AJP

NTo

p

Railroad

Investment by subnationalgovernments is falling

Source: OECD General Government Accounts database.40

Create as planned a technical support unit for public investment using existing administrative structures and ensure it is well staffed.

Public investment, EUR billions

0

10

20

30

40

50

60

0

10

20

30

40

50

60

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Local government Central government

Absorption of EU funds is low,especially in the south

Source: European Commission, Open Data Portal for the European Structural and Investment Funds. (https://cohesiondata.ec.europa.eu/)

41

Rationalise and improve coordination among bodies involved in regional development policies by strengthening the role and expertise of central government bodies.

Spending of EU funds 2014-2020 programming period,at end September 2018, % of planned investments

0

5

10

15

20

25

30

35

0

5

10

15

20

25

30

35

National South Centre and North

Metropolitan areas’ administration is somewhat fragmented, weighing on efficiency

Source: OECD Metropolitan Areas database; and OECD Regional Statistics database.42

Empower metropolitan governance bodies with the transfer of some of the powers of regions and provinces.

Rome

Milan

NaplesTurin

Palermo

GenovaFlorence

Bari Bologna

Catania

Venice

0

5

10

15

20

25

0

5

10

15

20

25

LowestOECD -

IRL

GBR JPN CAN ITA USA DEU ESP OECD PRT FRA HighestOECD -

CZE

Number of municipalities in metropolitan areas per 100 000 inhabitants, 2014

Main recommendationsImproving public investment and regional

development policies Create as planned a technical support unit for public investment using existing

administrative structures and ensure it is well staffed.

Simplify the most complex aspects of the public procurement code, but protect the powers of the anticorruption authority.

Develop a comprehensive public investment and spatial plan linking infrastructure developments with land use management.

Rationalise and improve coordination among bodies involved in regional development policies by strengthening the role and expertise of central government bodies

Empower metropolitan governance bodies with the transfer of some of the powers of regions and provinces.

More in ‘Key Policy Insights’and Chapter 1: Tackling Italy’s social and regional divide

43

Disclaimers: The statistical data for Israel are supplied by and under the responsibility of the relevant Israeli authorities. The use of such data by the OECD is without prejudice to the status of the Golan Heights, East Jerusalem and Israeli settlements in the West Bank under the terms of international law.This document and any map included herein are without prejudice to the status of or sovereignty over any territory, to the delimitation of international frontiers and boundaries and to the name of any territory, city or area.

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www.oecd.org/eco/surveys/italy-economic-snapshot/