M. Bik, G. Di Bartolomeo – Structural reforms and Italy’s potential output: A macroeconomic assessment
What would happen to Italy’s GDP if half a million public employees obtained a tertiary degree? If the costs of starting a business were reduced by 10% to 20%? If the duration of civil trials was halved? If the school dropout rates were the same as those of the best European countries? In other words, how much would the country’s GDP gain if Italy became a more efficient country?
This policy brief presents the results of a study that used a model-based approach to assess the potential effects of the structural reforms in the Italian Recovery and Resilience Plan. The study utilized detailed administrative data from 482 milestones and 665 policy targets. The analysis was based on official documents, and a dynamic general equilibrium model was employed to evaluate the reforms’ effects. In a nutshell, reforms substantially impact potential output in the medium- and long-term. The reform package’s effectiveness becomes evident in the long run, with a projected 10% increase in GDP in 2050 compared to the alternative scenario without reform. However, significant effects are also anticipated to emerge by 2026, with a projected 3.4% increase in potential output. The labor market and education measures are the primary drivers of the reforms’ impact.