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Structural Reforms and the Potential Effects on the Italian Economy

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  • Barbara Annicchiarico

    ()
    (Faculty of Economics, University of Rome "Tor Vergata")

  • Fabio Di Dio

    ()
    (Consip S.p.A., Macroeconomic Modelling Unit)

  • Francesco Felici

    ()
    (Italian Ministry of Economy and Finance,)

Abstract

Since the second half of 2011, after a period of prolonged low growth, Italy has found itself at the center of a severe economic crisis. Concerns about the sustainability of its debt burden, along with gloomy growth prospects, have pushed up the cost of government borrowing, exacerbating current economic conditions. At the moment Italy is facing two mounting economic challenges: (i) achieve a rapid fiscal consolidation to restore financial market confidence; (ii) implement structural reforms to strengthen medium-term growth prospects. Using the European Commission's model QUEST III with R&D, adapted to Italy, we quantify the potential effects of a set of interventions inspired to the reform packages currently being undertaken or under discussion and consider different levels of policy effort. Results show that reforms are likely to bring about sizable gains in output, consumption, employment and net foreign assets position and that most of these gains derive from labor market reforms. However, the fiscal austerity plan is likely to severely mitigate the positive effects of the interventions, especially during the earlier phases of the reform process. Most of these losses accrue to liquidity-constraint households who would experience a drop in consumption.

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Bibliographic Info

Paper provided by Tor Vergata University, CEIS in its series CEIS Research Paper with number 227.

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Length: 25 pages
Date of creation: 29 Mar 2012
Date of revision: 29 Mar 2012
Handle: RePEc:rtv:ceisrp:227

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Postal: CEIS - Centre for Economic and International Studies - Faculty of Economics - University of Rome "Tor Vergata" - Via Columbia, 2 00133 Roma
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Keywords: Structural Reforms; Fiscal Consolidation; Simulation Analysis; Italy;

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Citations

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Cited by:
  1. Barbara Annicchiarico & Fabio Di Dio & Francesco Felici & Francesco Nucci, 2013. "Assessing policy reforms for Italy using ITEM and QUESTIII," CEIS Research Paper 280, Tor Vergata University, CEIS, revised 17 May 2013.
  2. Barbara Annicchiarico & Fabio Di Dio & Francesco Felici, 2014. "Fiscal Devaluation Scenarios: A Quantitative Assessment for the Italian Economy," CEIS Research Paper 311, Tor Vergata University, CEIS, revised 09 Apr 2014.
  3. Barbara Annicchiarico, Fabio Di Dio, Francesco Felici, 2013. "Pro-Competitive Reforms And Timing Of Implementation: An Igem-Based Simulation Analysis For Italy," RIEDS - Rivista Italiana di Economia, Demografia e Statistica - Italian Review of Economics, Demography and Statistics, SIEDS Societa' Italiana di Economia Demografia e Statistica, vol. 0(2), pages 155-170, April-Jun.
  4. Buiatti, Cesare & Carmeci, Gaetano & Mauro, Luciano, 2014. "The origins of the public debt of Italy: Geographically dispersed interests?," Journal of Policy Modeling, Elsevier, vol. 36(1), pages 43-62.
  5. Artzrouni, Marc & Tramontana, Fabio, 2013. "The debt trap: a two-compartment train wreck," MPRA Paper 47578, University Library of Munich, Germany.
  6. Barbara Annicchiarico & Anna Rita Bennato & Emilio Zanetti Chini, 2014. "150 Years of Italian CO2 Emissions and Economic Growth," CREATES Research Papers 2014-02, School of Economics and Management, University of Aarhus.
  7. Lusine Lusinyan & Dirk Muir, 2013. "Assessing the Macroeconomic Impact of Structural Reforms The Case of Italy," IMF Working Papers 13/22, International Monetary Fund.

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