Title page
Contents
Executive summary 10
1. Key policy insights 16
The COVID-19 crisis hit a weakening economy 17
The recovery will be gradual but subject to risks 23
The COVID-19 crisis has exacerbated some macro-financial vulnerabilities 25
A structural reform package for a sustained, green and inclusive recovery 32
Main findings and recommendations 69
References 70
2. Strengthening Italy's public sector effectiveness 79
A more effective public sector is essential to address Italy's challenges 80
Revisiting what interventions the public sector makes in the economy 84
Improving how the public sector delivers 95
Better leveraging who across the government delivers public services and investments 110
Policy recommendations 121
References 122
Table 1. Exports and investment lead the recovery 11
Table 1.1. Low-probability events that could lead to major changes in the outlook 24
Table 1.2. Macroeconomic indicators and projections 25
Table 1.3. Disbursements of COVID-related guaranteed loans are below the announced ceilings 31
Table 1.4. Estimated allocations for the National Recovery and Resilience Plan 34
Table 1.5. A policy reform package to boost income into the long term 37
Figure 1. The economic contraction was severe 11
Figure 2. The government responded swiftly to the COVID-19 crisis 11
Figure 3. Faster growth is needed to improve the debt-to-GDP ratio 12
Figure 4. More physical and social capital is key to raise growth 13
Figure 5. Pension and debt costs leave little space for pro-growth and inclusive spending 14
Figure 1.1. Improving vaccination rollout has allowed a gradual easing of activity restrictions 17
Figure 1.2. The high share of severely restricted sectors amplified economic contraction 18
Figure 1.3. COVID impact has been broad - but the most vulnerable have suffered more 19
Figure 1.4. Italy has relied heavily on short-time work schemes and made provision for generous loan facilities 22
Figure 1.5. Exports by main destinations and main goods 23
Figure 1.6. Confidence has recovered, and investment is expected to lead the rebound 24
Figure 1.7. Swift policy responses have been a vital lifeline for access to finance given low cash holdings 26
Figure 1.8. Vulnerabilities remain in the banking sector 27
Figure 1.9. Non performing and bad loans have been progressively reduced 28
Figure 1.10. Public debt levels have risen sharply and will remain elevated 29
Figure 1.11. Spending on pensions is set to rise from already high levels - even with reforms 30
Figure 1.12. Older Italians are relatively well off compared to counterparts in Europe 30
Figure 1.13. Putting public debt on a downward path requires additional structural reforms 32
Figure 1.14. Per capita income has stagnated 33
Figure 1.15. Sluggish investment and productivity have weighed on growth 33
Figure 1.16. Investment dominates spending plans 34
Figure 1.17. There is room to improve utilisation of EU investment funds 39
Figure 1.18. Investment has recovered slowly from the global financial crisis and lags peers 41
Figure 1.19. Investments rose fastest in manufacturing sectors and intellectual property assets 42
Figure 1.20. R&D spending is particularly low by the government and higher education institutions 43
Figure 1.21. Non-financial corporates have reduced leverage but are still vulnerable 44
Figure 1.22. The generosity of ACE reduces the debt bias 45
Figure 1.23. Italy has progressed in reducing carbon emissions 46
Figure 1.24. Transport, electricity and domestic heating are the main sources of greenhouse gas emissions 47
Figure 1.25. Carbon pricing is not yet widely applied and exposure to particulate emissions remains high 48
Figure 1.26. Uncertainty about regulations and taxes is a major obstacle to green investment 49
Figure 1.27. Regulations can be better designed to achieve objectives 49
Figure 1.28. Italy's productivity growth has lagged its peers for the last two decades 50
Figure 1.29. A recovery in manufacturing productivity, but services sector productivity lags 51
Figure 1.30. Firms' entry and exit rates lag other countries 51
Figure 1.31. Product market regulation in Italy's services sector lags other areas 52
Figure 1.32. Professional services restrictions are very high 53
Figure 1.33. Access to high-speed broadband is low 54
Figure 1.34. There is scope to increase the use of government e-services 54
Figure 1.35. Low recovery rates can stymie firm creation and raise the costs of recessions 57
Figure 1.36. Italy's justice system in practice reduces the efficacy of its property rights framework 58
Figure 1.37. Perceptions of corruption are still high compared to other OECD countries 59
Figure 1.38. Italy has been effective in fighting money laundering 60
Figure 1.39. Access to employment is deeply unequal and unemployment is persistent 61
Figure 1.40. Workers benefiting from Italy's recent reforms now face income tax wedges near the EU average 62
Figure 1.41. Spending on ALMPs has risen, but high unemployment and skills gaps require more 63
Figure 1.42. Firms are not providing their employees enough digital training 64
Figure 1.43. Italy's tax mix has low reliance on VAT and a higher reliance on social security contributions than peer countries 66
Figure 1.44. Inheritance tax thresholds are low compared to OECD peers and average bequests 67
Figure 1.45. The marginal effective rates of property 67
Figure 2.1. Perceptions of the public sector's effectiveness lag behind other OECD countries 80
Figure 2.2. Italy's pension and debt servicing costs are higher than in most other OECD countries, while growth-enhancing spending is lower 85
Figure 2.3. Outcomes from Italy's public spending lag behind in some areas, such as building skills and reducing poverty rates among children and families 85
Figure 2.4. Italy has developed a large number of performance indicators, but they have little influence on what public goods and services the budget funds 88
Figure 2.5. Italy has substantially improved how it designs regulations, but still regulates some sectors heavily 92
Figure 2.6. Italy's public sector workforce has been reduced to among the smaller across the OECD 95
Figure 2.7. Italy's ageing public workforce will soon bring a loss of experience and an opportunity for renewal 97
Figure 2.8. Public service pay rates are compressed, with low skill and the top echelon of public servants earning relatively high wages 100
Figure 2.9. Smaller municipalities have thinner procurement capacity and use direct purchasing more often 104
Figure 2.10. Italy has made significant progress in transforming public services through digital technologies and data, but take-up lags 107
Figure 2.11. Local authorities that digitalise are more effective, but most only digitalise when compelled 108
Figure 2.12. Italy has room to shift resources to active labour market policies with a greater focus on serving jobseekers 109
Figure 2.13. Italy is moderately decentralised, and subnational governments have an important role delivering public investment 111
Figure 2.14. Most of Italy's 7900 municipalities are small 112
Figure 2.15. Improving the efficiency of childcare services would help raise access 115
Figure 2.16. Larger municipalities execute a lower share of their public investment projects 117
Figure 2.17. Public enterprises play a large role in Italy, and their governance can be improved 119
Figure 2.18. Most public enterprises are held by local governments and many have few employees 120
Boxes
Box 1.1. Italy's main fiscal policy responses to cushion the impact of the COVID-19 crisis 21
Box 1.2. The Italian experience in strengthening banks and the market for non-performing loans 28
Box 1.3. Spending priorities of the National Recovery and Resilience Plan 34
Box 1.4. Structural reform priorities in the National Recovery and Resilience Plan 36
Box 1.5. The impact of the National Recovery and Resilience Plan and additional structural reforms on growth and fiscal sustainability 37
Box 1.6. Developing non-bank financing channels 44
Box 1.7. Italy's experience with the tax allowance for corporate equity (ACE) 45
Box 1.8. OECD countries' experience in using productivity boards to promote public sector reforms 55
Box 2.1. The Resilience and Recovery Plan's focus on strengthening public sector effectiveness 82
Box 2.2. Some strategies for successful public sector reforms in OECD countries 83
Box 2.3. Italy's central government budget process 86
Box 2.4. Budgeting for performance: countries' experience in informing budget decisions with performance indicators 87
Box 2.5. Integrating well-being into budget decision-making: the example of New Zealand 89
Box 2.6. Supporting subnational governments' spending analysis: the example of Spain's Independent Authority for Fiscal Responsibility, AIReF 90
Box 2.7. Reforming regulatory agencies' practices to support compliance in France, Lithuania and the United Kingdom 93
Box 2.8. 'Plain language' for clearer communication and better regulation: experience from Italy, Portugal and Sweden 96
Box 2.9. Boosting pay flexibility through decentralised pay setting 99
Box 2.10. How digitalising the public sector can help drive broader digitalisation 105
Box 2.11. Strengthening staffing and digitalisation to deliver more effective active labour market policies 108
Box 2.12. Better collaboration across different levels of government to deliver active labour market policies 113
Box 2.13. Measures to improve delivery of early childhood education and care in lagging localities 114