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- GDP (PPP):
- $1.8 trillion
- 0.4% growth
- -0.6% 5-year compound annual growth
- $30,464 per capita
- Inflation (CPI):
- FDI Inflow:
Italy’s economic freedom score is 60.6, making its economy the 83rd freest in the 2013 Index. Its overall score is 1.8 points higher than last year due to gains in labor freedom, control of public spending, and investment freedom that outweigh worsened monetary and business freedoms. Italy is ranked 36th out of 43 countries in the Europe region, and its score is above the world average.
The European sovereign debt crisis has seriously affected Italy’s macroeconomic stability. Sharp increases in the debt burden, aggravated by structural and institutional weaknesses, continue to erode long-term competitiveness. With public debt around 120 percent of GDP and growing, policy options are increasingly constrained. Due to the complexity of the regulatory environment and the high cost of conducting business, considerable economic activity remains in the informal sector.
Despite some reform progress that has enabled Italy’s economy to regain the status of “moderately free,” institutionalization of greater economic freedom has been uneven and largely ineffectual. The foundations of economic freedom remain weak in the absence of an efficient judicial framework to provide effective and timely resolution of cases. Corruption, often involving government officials, is a growing concern, severely undercutting confidence and trust in the government.
Center-right Prime Minister Silvio Berlusconi, elected for a third time in 2008, announced his resignation in November 2011 after challenges to his economic leadership and recurring personal scandals distracted attention from urgently needed reforms. Under a government of technocrats led by economist and former European Union Commissioner Mario Monti, the country emerged from economic crisis by mid-2009, but growth rates have since declined. Italy’s deficit as a percentage of gross domestic product has grown above eurozone standards. Other persistent problems include organized crime, illegal immigration, and the long-standing imbalance between the prosperous, industrialized North and the less-developed, agricultural South.
Property rights and contracts are secure, but court procedures are extremely slow. Many companies choose to settle out of court. The legal system is vulnerable to political interference. Widespread corruption has bred a culture of lawlessness and tax evasion and has weakened respect for the judiciary. Enforcement of intellectual property rights is below developed-country standards.
The top income tax rate is 43 percent, and the top corporate tax rate is 27.5 percent. Individuals also pay small regional and municipal income taxes. Other taxes include a value-added tax (VAT) and an inheritance tax. The overall tax burden equals 43 percent of GDP. Government spending equals about 50 percent of GDP. The deficit remains high but has been reduced by recent spending cuts. Public debt is about 120 percent of GDP.
Regulatory complexity causes delays and increases the cost of entrepreneurial activity. Completing licensing requirements takes over 200 days and costs more than the level of average annual income. Serious labor market rigidities constrain job growth, and the informal labor market accounts for a large proportion of employment. Stagflation engendered by the eurozone crisis presents monumental monetary policy challenges.
The trade-weighted average tariff rate is 1.6 percent, and Italy, like most other EU members, is relatively open to trade and investment. Foreign investment is officially welcome, but complex bureaucracy and arbitrary enforcement of regulations continue to impede dynamic investment growth. The financial system is subject to political interference, and banks have been highly strained by the European sovereign debt crisis.