Embed This Data
- GDP (PPP):
- $1.8 trillion
- -1.9% growth
- -1.5% 5-year compound annual growth
- $30,289 per capita
- Inflation (CPI):
- FDI Inflow:
Italy’s economic freedom score is 61.7, making its economy the 80th freest in the 2015 Index. Its overall score has increased by 0.8 point since last year, with improvements in five of the 10 economic freedoms, including property rights, freedom from corruption, labor freedom, and monetary freedom, outweighing declines in business freedom, management of government spending, and fiscal freedom. Italy is ranked 34th out of 43 countries in the Europe region, and its score is above the world average but below the regional average.
Despite the eurozone’s challenging economic environment, economic freedom in Italy has advanced by 1.4 points since 2011, maintaining the country’s “moderately free” rating. Medium-term gains have occurred in only three of the 10 economic freedoms but have been enough to advance Italy’s overall score. Improvements in labor and investment freedom have led sectoral gains.
However, more substantial reforms are needed. A rigid labor market delays hiring and firing, causing supply and demand mismatches. Government spending that consumes about 50 percent of the domestic economy crowds out productive investment. Growth is hindered by a property rights regime and rule of law that are weakly established by European standards.
After a February 2013 general election that produced no clear winner, center-left Democratic Party leader Enrico Letta was chosen to form a government and serve as prime minister. A year later, former Florence mayor Matteo Renzi won 80 percent of the vote to become Italy’s youngest prime minister ever. He leads a coalition government consisting of the center-left Democratic Party, the center-right People of Freedom Party led by former Prime Minister Silvio Berlusconi, and the centrist Civic Choice Party. Renzi has pledged to reform entitlements, taxes, and labor laws, and he remains broadly popular. Italy has an immense public debt, entrenched organized crime, a large informal sector, and high unemployment, particularly among the young. The North is industrialized and prosperous, while the South is less developed.
Former Prime Minister Berlusconi’s expulsion from parliament late in 2013 following his conviction for tax fraud led to the election in 2014 of a new government pledged to fight corruption. The legal system, however, remains vulnerable to political interference. Property rights and contracts are secure, but court procedures are extremely slow. Protection of intellectual property is below EU norms.
The top individual income tax rate is 43 percent, and the top corporate tax rate is 27.5 percent. Other taxes include a value-added tax and an inheritance tax. The total tax burden equals 44.4 percent of domestic production, and government expenditures account for 50.6 percent of domestic output. Public debt remains high at 133 percent of GDP, but sovereign financing concerns have abated.
With no minimum capital required, business formation takes only five procedures, but burdensome licensing requirements require over three months on average, discouraging dynamic entrepreneurial growth. The labor market remains stagnant. The rigid labor code hurts competitiveness and employment prospects. Monetary stability has been relatively well maintained, and the government has reduced subsidies for renewable energy.
EU members have a 1.0 percent average tariff rate. Although some non-tariff barriers exist, the EU is relatively open to external trade. Foreign and domestic investments are generally treated equally under Italian law. The financial system, dominated by banks, remains vulnerable to state interference. There are about 700 banks. Nonperforming loans have increased considerably since 2007.