The Macroeconomics of Europe 2020 Reform Strategy and the Potential Effects on the Italian Economy

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Oct 28, 2013 (3 years and 10 months ago)

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Working Papers


8

-

October 2011

Ministry

of Economy and Finance

Department of the Treasury

ISSN 1972
-
411X

The Macroeconomics of Europe 2020 Reform

Strategy and the Potential Effects

on the Italian Economy

Barbara Annicchiarico, Fabio Di Dio, Francesco Felici


W
orking Pap
ers

The working paper series promotes the dissemination of economic research produced in
the Department of the Treasury (DT) of the

Italian Ministry of Economy and Finance
(MEF) or presented by external economists on
the occasion of seminars
organized

by
MEF on topics of institutional interest to the DT, with the aim of stimulating comments
and suggestions.

The views expressed in the
working papers are those of the authors and do not
necessarily reflect those of the MEF and the DT.

Copyright:

©

2011,

Barbara Annicchiarico, Fabio Di Dio, Francesco Felici
.


The document can be downloaded from the Website
www.dt.tesoro.it and freely
used, providing that its source and author(s) are quoted.


Editorial Board:
Lorenzo Codogno, Mauro Marè, Libero Monteforte, Francesco Nucci, Franco Peracchi

Organiz
ational

coordination
: Marina Sabatini



1



CONTENTS

1

INTRODUCTION


................................
................................
................................
....................


3

2

QUEST III WITH R&D:
MODEL SETUP AND CALI
BRATION


................................
.............


6

2
.1

H
OUSEHOLDS AND
W
AGE
S
ETTING


................................
................................
....................


7

2
.2

F
INAL
G
OODS
S
ECTOR


................................
................................
................................
......


9

2
.
3

I
NTERMEDIATE
G
OODS
S
ECTOR AND THE
R&D

S
ECTOR

................................
....................


10

2.4

F
OREIGN
S
ECTOR
,

M
ONETARY AND
F
ISCAL
A
UTHORITIES


................................
.................


1
1

2.5

C
ALIBRATION


................................
................................
................................
..................


1
2

3

THE EUROPE 2020 STRA
TEGY AND REFORM SCEN
ARIOS


................................
........


1
3

3.1

P
OLICY
A
REAS AND
QUEST

III

V
ARIABLES


................................
................................
......


13

3.2

S
CENARIOS


................................
................................
................................
....................


1
5

4

SIMULATION RESULTS


................................
................................
................................
.....


1
6

4
.1

L
ONG
-
RUN
E
FFECTS OF
S
TRUCTURAL
R
EFORMS


................................
................................


1
6

4.2

T
RANSITIONAL
D
YNAMICS AND
E
FFECTS OF
S
INGLE
I
NTERVENTIONS


................................
....

18

5

CONCLUSIONS


................................
................................
................................
...................


1
9

REFERENCES

................................
................................
................................
..........................


2
0





2

The Macroeconomics of Europe 2020

Reform
Strategy and the Potential Effects

on the Italian Economy
1

Barbara Annicchiarico

(

),
Fabio Di Dio

(


) e
Francesco Felici

(



)

Abstract

This paper studies the potential effects on the Italian economy of various reform
packages in the spirit of the Europe 2020 strategy. Using the European Commission’s
model QUEST

III with R&D calibrated to match important features of the Italian
economy, we provide a quantitative assessment of the possible effects in terms of
growth, employment, sustainability of public finances and external imbalances of
several knowledge
-
oriente
d, labor and product market reforms. We observe that labor
market reforms are likely to bring about sizable long
-
run gains in output and
employment and that most of these gains accrue to low skilled workers, while real
wages tend to increase especially for

high skilled workers. Some interventions are likely
to have some transitional costs as they give rise to a temporary decline in consumption
and/or employment, but the simultaneous implementation of all reforms may tend to
mitigate these effects already in

the medium run. As a result of higher growth, in the no
costly reform scenarios, the public debt
-
to
-
GDP ratio declines substantially. However,
the analysis shows that non
-
budget neutral structural reforms may have considerable
side effects on the external

imbalances.

JEL
classification
: E10, E60, E47.

Keywords
:
Europe 2020, Structural Reforms, Simulation Analysis, Italy
.





1

We are very grateful to Werner Roeger, Janos Varga and Jan in’t Veld for sharing with us many

invaluable insights
about their model, QUEST III. We also thank an anonymous referee, Alexandr

Hobza and Gilles Mourre and the
participants to the LIME Modelling Workshop 2010 and to the

EcoMod2011 conference for useful comments.and
suggestions on a
n

earli
er version of this paper. The

usual disclaimer applies. The views expressed herein are those of
the authors and not necessarily

reflect those of the Italian Ministry of Economy and Finance.
.


(

)

University of Rome “Tor Vergata”, Department of Economics,
Via

Columbia 2, 00133 Roma, Italy.


Phone: +390672595731. E
-
mail: barbara.annicchiarico@uniroma2.it.

(


)

Consip S.p.A., Department of Public Finance, Macroeconomic Modelling Unit. E
-
mail:

fabio.didio@tesoro.it.

(



)

Italian Ministry of Economy

and Finance, Department of the Treasury, Economic and Financial

Analysis and
Planning Directorate. E
-
mail: francesco.felici@tesoro.it



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-
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