Francesco Felici

Assessing Italy's Reform Challenges: What Do Growth Accounting and Structural Indicators Say?

Italy’s overall GDP growth has been dismal in recent years and this poor performance has been compounded by a declining trend in labour productivity and total factor productivity growth. This paper looks into growth accounting and structural indicators and analyses Italy’s performance against other European countries. We look at the evidence provided by newly available information from the Lisbon Assessment Framework (LAF) developed by the Working Group on Lisbon Methodology (LIME) attached to the Economic Policy Committee and the European Commission services (DG ECFIN). Building upon the results of existing literature, we investigate whether this new evidence is supported by data from other sources and provides fresh insight into Italy’s reform process. The main message from the analysis of growth accounting and structural indicators appears to be that Italy’s GDP growth significantly underperformed that of the EU15 in 2001-2007 notwithstanding progress on reforms.

Gender policy and female employment: a CGE model for Italy

ABSTRACT The gender integration in all areas of policy choices and at all stages of the decision-making process is strongly recommended by the European Union and represents an achievement that the Member States should accomplish when implementing policy measures. In a country like Italy, where the level of female labour participation is among the lowest in Europe, policy maker decisions should encourage and stimulate the demand for female labour without neglecting the global employment rate and income growth. The multisectoral analysis offers the possibility to bridge gender disaggregation within income formation and distribution from the production phase to the demand formation. In this perspective, this paper develops a gender-aware CGE model based on the gender-aware SAM for the Italian economy to evaluate the impact of different fiscal policies aimed to reduce female labour cost and trigger woman hiring in those sectors with high gender disparity.

Assessing Policy Reforms for Italy Using ITEM and QUEST III

In this paper we assess the implications of policy reforms for the Italian economy by jointly using the Italian Treasury Econometric Model (ITEM) and QUEST III, the endogenous growth dynamic general equilibrium (DGE) model of the European Commission (DG ECFIN) in the version calibrated for Italy. We point out some of the key differences between the two models, highlighting some policy insights that DGE models can provide compared to those of traditional macro-econometric models. Their structural characteristics and the results of simulations are analyzed by using an array of shocks commonly examined in the evaluation of possible reforms. We show that two elements incorporated into the QUEST model play a key role in explaining the qualitative and quantitative differences among the two models in the dynamic responses to structural shifts, namely: the role of expectations in the transmission of reforms and the endogenous growth mechanism. We conclude that the joint consideration of the two models can improve our understanding of how the assessment of policy interventions is likely to be affected by the uncertainty surrounding model-based evaluation.

The Post-2007 Developments in the Italian Economy: A Counterfactual Analysis with the ITEM Model

To analyse the macroeconomic dynamics in the Italian economy in the post-2007 period we conduct a counterfactual analysis using the econometric model of the Italian Treasury (ITEM). This allows us to assess on quantitative grounds the relevance of the different channels of the post-2007 recessions and to appraise how well the model performed in tracking the observed developments after 2007. We find that the forecasts errors over the horizon 2008–2014 mostly reflect the assumptions on the path of the exogenous variables made before the crisis erupted. We also show that the sharp fall in world demand in 2008–09, the post-2010 worsening of financial conditions in coincidence with the sovereign crisis and the severe post-2010 fiscal contraction account for a large fraction of the observed drop of GDP.

Fiscal Multipliers and the Risk of Self-defeating Fiscal Consolidation: Evidence for the Italian Economy

In this paper we document the fiscal multipliers for the Italian economy and show how their size impinges on the degree of success of a fiscal consolidation. To this aim, we use the econometric model of the Italian Treasury (ITEM). By simulating a number of alternative fiscal policy impulses on both the public expenditure and the revenue side, we derive the corresponding dynamic fiscal multipliers and ascertain the impact of these measures on the primary indicator of public finance performance, namely the debt-to-GDP ratio. We find that a shock on the expenditure side yields effects on output that are more pronounced in the short term and tend to vanish in the medium-to-long run. Conversely, the effects of shocks on the tax side are more persistent and become larger in the medium run. We therefore show that if a fiscal consolidation is channeled on the expenditure side, then it is in general self-defeating in the short run, as the debt-to-GDP ratio is shown to deteriorate for some years. Conversely, if the fiscal consolidation is channeled on the revenue side, then the debt-to-GDP ratio improves, although by significantly less than the ex-ante size of the fiscal correction.