Front Matter Page
© 2006 International Monetary Fund
February 2006
IMF Country Report No. 06/59
Italy: Selected Issues
This Selected Issues paper for Italy was prepared by a staff team of the International Monetary Fund as background documentation for the periodic consultation with the member country. It is based on the information available at the time it was completed on January 13, 2006. The views expressed in this document are those of the staff team and do not necessarily reflect the views of the government of Italy or the Executive Board of the IMF.
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Front Matter Page
INTERNATIONAL MONETARY FUND
ITALY
Selected Issues
Prepared by Paulo Drummond, Bogdan Lissovolik, Silvia Sgherri (all EUR), Annalisa Fedelino (FAD), Andrea M. Maechler (MFD) and Sandra Marcelino (FIN)
Approved by European Department
January 13, 2006
Contents
I. Introduction and Overview
II. Regaining Competitiveness: A Challenge “Made in Italy”
A. Introduction
B. Diverging External Sector Developments in the Euro Zone
C. The Deterioration of Italy’s International Competitiveness
Recent Developments
Empirical Evidence
D. Concluding Remarks
Figures
1. Real Effective Exchange Rates, Productivity, and Wages
2. What’s Behind Deteriorating Trade Performances?
3. Accounting for Export Growth
Annexes
1. Data Sources
2. Error-Correction Models for Italy’s Trade Equations
References
III. Regional Growth in the EU and Italy: Policies versus (Sectoral) Legacy
A. Introduction
B. Europe-wide Regional Growth
Unconditional Convergence With and Without Country Dummies
Structural Regional Growth Determinants in the EU
C. Italy’s Medium-term Regional Growth
D. Conclusion
Tables
1. Unconditional Convergence Regressions in the EU, 1996–2002. Nuts-2 Regions, Dependent Variable PPP Real per Capita Relative Changes
2. Convergence Cross-section Regressions by Sub-period
3. Convergence Cross-section Regression with Country Dummies
4. OLS Convergence Cross-section Regressions within Large EU Countries, 1996–2002.
5. Europe-wide Regional Growth and National Policy Environments, EU-14 (excluding Luxembourg), Basic Cross-section Regression, Dependent Variable PPP Real Growth per Capital in 1999–2002
6. Subcomponents of the Product Market Regulation Index in the Convergence Regressions, EU-14. Dependent Variable: PPP Real Growth per Capita in 1999–2002.
7. Role of financial and Institutional Development measures. Dependent Variable PPP: Real Growth per Capita in 1999–2002
8. Europe-wide Regional Growth and National Policy Environments, EU-4/EU-5, Cross-section Regression, Dependent Variable PPP Real Growth per Capita in 1999–2002
9. The Role of Italy and Germany Country Dummies, Dependent Variable PPP Real Growth per Capita in 1999–2002, EU-14
10. Italian Regions: Dependent Variable: Real per Capita GDP Growth, Panel Data, 2001–04
11. Italian Regions: Dependent Variable: Real per Capita GDP Growth, Panel Data, 1996–2003
Figures
1. EU-25, Real PPP GDP per Capita Convergence, 1995–2002
2. EU-14: Product and Labor Market Indicators, 1998–2003
3. EU-5: Sectoral Balassa Indices: EU-5 similary with China, 1997
4. Asia-Prone Production in Regional Manufacturing and Exports, 2001–04
5. Real GDP per Capita Convergence
6. Convergence and Asia-prone Sectoral Shares, 2001–04
Appendix
1. Data Description
References
IV. How Expansionary Are Tax Cuts in Italy?
A. Introduction
B. Some Theory
Basic Model
Fiscal Policy
Credit Constrained Consumers
Supply Effects
C. Some Estimates
D. Some Analysis
E. Some Conclusions
Tables
1. Estimates of Unrestricted Model
2. Estimates of Restricted Model with Myopic Consumers
3. Estimates of Restricted Model with Credit Constrained Consumers
4. Estimates of Restricted Model with Myopic Consumers
Figures
1. The Data
2. Impact of Changes in Disposable Income
3. Impact of Changes in Disposable Income for Different Degrees of Myopia
4. Impact of Lower Net Taxes
References
V. Infrastructure Investment and PPPs
A. Background
B. Public Investment Projects: Too Few or Too Many?
C. PPPs: A Viable Alternative to Public Investment?
D. Conclusions and Policy Recommendations
Figures
1. Public Investment, 1991–2004
Text Boxes
1. Strategic Infrastructure Projects and the Objective Law
2. Public Projects: How Long Do They Take?
3. High Speed Trains: From Private to Pubic
4. The Legal Framework for PPPs in Italy
5. Some General Principles for Proper Accounting of PPPs
References
VI. Assessing Competition and Efficiency in the Banking System
A. Introduction and Key Findings
B. Consolidation and Concentration
C. Contestability and Costs Indicators
Foreign Ownership
Costs of Banking Services
Switching Costs
D. Profitability
E. Efficiency Estimates
Cross-Country Profitability Differences
Effects of Bank Characteristics on Revenue Generation and Cost Control
Productive Efficiency
F. Market Power
Lerner Index
Panzar-Rosse Index
G. Competition Policy and Financial Stability
Tables
1a. Evolution in Average Scale of Italian Banks, on a Consolidated basis
1b. Selected Countries: Market Concentration Indicators
2. Foreign-Ownership in Banking Sector
3. Cost of Banking Services
4. ROE Decomposition, 1994–2004
5. Selected Countries: Banks Coverage, 1998–2004
6. Selected Countries. Sample Statistics, 2004
7. Selected Countries. Panel Regression Results on Net Interest Margin. Between Estimator With Weighted Least Squares
8. Selected Countries. Panel Regression Results on Operating Profits to Total Assets Between Estimator with Weighted Least Squares
9. Selected Countries. Panel Regression Results on Operating Income to Total Assets Random Effects Estimator
10. Selected Countries. Panel Regression Results on Operating Expense to Total Assets Random Effects Estimator
11. Selected Countries. Panel Regression Results on Operating Profits to Total Assets Random Effects Estimator
12. Selected Countries. Panel Regression Results on Operating Income to Total Assets Frontier Approach with Translog Functional Form
13. Selected Countries. Panel Regression Results on Operating Expense to Total Assets Frontier Approach with Translog Functional Form
14. Selected Countries. Panzar-Rosse H-Statistics, 1998–2004
Figures
1. Banking Sector Size and per-Capita GDP
2. Banking Sector: Total Loans and Stock Market Capitalization, end-2004
3. Top 50 Banks: Concentration Indices, 1998 and 2004
4. Selected Countries: Top 50 Banks, 2004 Operating Revenue
5. Top 50 Banks: Profitability Indicators, end-2004
6. Top 50 Banks: Indicators of Efficiency, 2004
Text Boxes
1. Data Sources
2. Interpretation of H-statistic
3. Competition and Stability: Key Findings of the Literature
References