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- GDP (PPP):
- $2.2 trillion
- 0.8% growth
- -0.6% 5-year compound annual growth
- $36,833 per capita
- Inflation (CPI):
- FDI Inflow:
Italy’s economic freedom score is 62.5, making its economy the 79th freest in the 2018 Index. Its overall score has not changed; improvements in judicial effectiveness, government spending, and fiscal health were offset by declines in government integrity and property rights. Italy is ranked 36th among 44 countries in the Europe region, and its overall score is below the regional average but above the world average.
Italy’s economy, the eurozone’s third largest, is hobbled by exceptionally high public debt and such structural impediments to growth as labor market inefficiencies, a sluggish judicial system, and a weak banking sector. Political uncertainty increases the potential for financial volatility and could further delay structural reform. The economy remains burdened by political interference, corruption, and poor management of public finance. The complexity of the regulatory framework and high cost of conducting business cause considerable economic activity to remain in the informal sector.
Italy is a charter member of NATO and the European Union. Paolo Gentiloni of the center-left Democratic Party became prime minister in December 2016, leading a coalition government. His predecessor and close political ally, Matteo Renzi, was elected head of the Democratic Party. Former Prime Minister Silvio Berlusconi’s center-right Forza Italia performed well in June 2017 municipal elections. Political instability limits the government’s ability to implement long-overdue political and economic reforms. Italy’s diversified economy is divided into a developed industrial North, dominated by private companies, and a less-developed, highly subsidized agricultural South, where unemployment is higher. Italy has struggled with pressure from migrants crossing the Mediterranean and Adriatic Seas, often from Libya.
Registration of real property takes an average of 16 days, requires four procedures, and costs an average of 4.4 percent of the property’s value. The courts enforce contractual rights and real property rights, but their procedures are slow. The legal system is vulnerable to political interference. Corruption and organized crime are significant impediments to investment and economic growth.
The top personal income tax rate is 43 percent, and the top corporate rate is 27.5 percent. Other taxes include value-added and inheritance taxes. The overall tax burden equals 43.3 percent of total domestic income. Over the past three years, government spending has amounted to 50.3 percent of total output (GDP), and budget deficits have averaged 2.7 percent of GDP. Public debt is equivalent to 132.6 percent of GDP.
Lengthy and often inconsistent legal and regulatory systems and layered bureaucracy make entrepreneurial activity more difficult. Italy made paying taxes easier for businesses in 2016. The European Commission forecasts that Italy’s unemployment rate will remain in double digits through 2020, although labor force participation has improved. Critics charge that a parasitic public–private ecosystem created by a “subsidy mentality” breeds inertia on both sides.
Trade is significant for Italy’s economy; the combined value of exports and imports equals 57 percent of GDP. The average applied tariff rate is 1.6 percent. Nontariff barriers impede some trade. In general, government policies do not significantly interfere with foreign investment. The financial system is subject to political interference, and the European sovereign debt crisis has seriously strained banks in recent years.