2021 Index of Economic Freedom

Italy

OVERALL SCORE64.9
WORLD RANK68
Rule of Law

Property Rights75.7

Judicial Effectiveness62.3

Government Integrity63.7

Government Size

Tax Burden58.1

Government Spending28.9

Fiscal Health73.0

Regulatory Efficiency

Business Freedom68.1

Labor Freedom50.5

Monetary Freedom84.2

Open Markets

Trade Freedom84.0

Investment Freedom80.0

Financial Freedom50.0

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Quick Facts
  • Population:
    • 60.3 million
  • GDP (PPP):
    • $2.5 trillion
    • 0.3% growth
    • 1.0% 5-year compound annual growth
    • $44,197 per capita
  • Unemployment:
    • 9.9%
  • Inflation (CPI):
    • 0.6%
  • FDI Inflow:
    • $26.6 billion

Italy’s economic freedom score is 64.9, making its economy the 68th freest in the 2021 Index. Its overall score has increased by 1.1 points, primarily because of an improvement in judicial effectiveness. Italy is ranked 36th among 45 countries in the Europe region, and its overall score is below the regional average but above the world average.

The Italian economy has been in the moderately free category in most years since the inception of the Index in 1995, dragged down by one consistently very low-scoring indicator: government spending. The vast majority of that spending consists of politically motivated funding of programs that do little to increase the overall performance of the country’s economy.

IMPACT OF COVID-19: As of December 1, 2020, 56,361 deaths had been attributed to the pandemic in Italy, and the economy was forecast to contract by 10.6 percent for the year.

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Background

Italy is a charter member of NATO and the European Union. Prime Minister Giuseppe Conte has led a coalition government comprising the populist Five Star Movement and the center-left Democratic Party since September 2019. The Five Star Movement’s former coalition partner, Lega, favors strict controls on immigration and remains the most politically popular party. Italy is expected to be a chief beneficiary of the EU’s coronavirus recovery fund. Italy’s diversified economy is bifurcated between the highly developed industrial North, dominated by private companies, and a less-developed, highly subsidized agricultural South where unemployment is higher. Tourism accounts for 13 percent of GDP, and its current struggles are an economic albatross. Migration, which remains the most highly charged political issue, surged in 2020.

Rule of LawView Methodology

Property Rights 75.7 Create a Graph using this measurement

Judicial Effectiveness 62.3 Create a Graph using this measurement

Government Integrity 63.7 Create a Graph using this measurement

Property rights and contracts are secure, but delays in court procedures undermine enforcement. The legal system is cumbersome and vulnerable to political interference. A bloated and self-interested bureaucracy slows efforts to enforce anticorruption laws. Corruption and organized crime remain significant impediments to investment and economic growth in parts of Italy despite efforts by successive governments to reduce risks.

Government SizeView Methodology

The top individual income tax rate is 43 percent, and the top standard corporate tax rate is 24 percent, with qualifying banks and financial institutions taxed at 27.5 percent. The overall tax burden equals 42.1 percent of total domestic income. Government spending has amounted to 48.7 percent of total output (GDP) over the past three years, and budget deficits have averaged 2.1 percent of GDP. Public debt is equivalent to 134.8 percent of GDP.

Regulatory EfficiencyView Methodology

Processes for starting a business and obtaining construction permits have become more complicated and lengthy. Amended regulations regarding fixed-term contracts have reduced labor freedom. The government allows most prices to be set by the market except for electricity, transportation, pharmaceuticals, telecommunications, water, and gas networks. Funding for subsidies in the government’s 2020 budget is equivalent to 1.4 percent of GDP.

Open MarketsView Methodology

As a member of the EU, Italy has 45 preferential trade agreements in force. The trade-weighted average tariff rate (common among EU members) is 3 percent, with 639 EU-mandated nontariff measures in force. There is no general screening of foreign investment, and most sectors of the economy are open. The financial sector remains stable. Bank recapitalization has been underway, but nonperforming loans remain problematic.

Country's Score Over Time

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Regional Ranking

RANK COUNTRY OVERALL CHANGE
1Switzerland81.9-0.1
2Ireland81.40.5
3United Kingdom78.4-0.9
4Estonia78.20.5
5Denmark77.8-0.5
6Iceland77.40.3
7Georgia77.20.1
8Lithuania76.90.2
9Netherlands76.8-0.2
10Finland76.10.4
11Luxembourg760.2
12Sweden74.7-0.2
13Austria73.90.6
14Czech Republic73.8-1.0
15Norway73.40.0
16Germany72.5-1.0
17Latvia72.30.4
18Armenia71.91.3
19Cyprus71.41.3
20Bulgaria70.40.2
21Malta70.20.7
22Belgium70.11.2
23Azerbaijan70.10.8
24Spain69.93.0
25Poland69.70.6
26Romania69.5-0.2
27North Macedonia68.6-0.9
28Slovenia68.30.5
29Portugal67.50.5
30Serbia 67.21.2
31Hungary67.20.8
32Kosovo66.5-0.9
33Slovak Republic66.3-0.5
34France65.7-0.3
35Albania65.2-1.7
36Italy64.91.1
37Turkey64-0.4
38Croatia63.61.4
39Montenegro63.41.9
40Bosnia and Herzegovina62.90.3
41Moldova62.50.5
42Russia61.50.5
43Belarus61-0.7
44Greece60.91.0
45Ukraine56.21.3
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