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Structural Reforms and the Potential Effects on the Italian Economy

25 Pages Posted: 31 Mar 2012  

Barbara Annicchiarico

University of Rome, Tor Vergata - Department of Economics and Finance

Fabio Di Dio

Sogei S.p.a.

Francesco Felici

Government of the Italian Republic (Italy) - Ministry of Economy and Finance - Department of the Treasury

Date Written: March 29, 2012

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.

Keywords: Structural Reforms, Fiscal Consolidation, Simulation Analysis, Italy

JEL Classification: E10, E60, E47

Suggested Citation

Annicchiarico, Barbara and Di Dio, Fabio and Felici, Francesco, Structural Reforms and the Potential Effects on the Italian Economy (March 29, 2012). CEIS Working Paper No. 227. Available at SSRN: https://ssrn.com/abstract=2030811 or http://dx.doi.org/10.2139/ssrn.2030811

Barbara Annicchiarico (Contact Author)

University of Rome, Tor Vergata - Department of Economics and Finance ( email )

Rome, I-00133
Italy

Fabio Di Dio

Sogei S.p.a. ( email )

Via Mario Carucci n. 99 e 85
Roma, 00143
Italy
+39068544 9092 (Phone)

Francesco Felici

Government of the Italian Republic (Italy) - Ministry of Economy and Finance - Department of the Treasury ( email )

Via XX Settembre, 97
Rome, 00187
Italy
00390647614197 (Phone)

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