Private Investment in Italy

Summary:

Both Italy’s private and public investment have been subdued since the crisis, especially in the South. Yet these are key to boosting Italy's sluggish productivity, enhancing its long-term growth potential and reducing the high public debt-to-GDP ratio. Structural weaknesses were already present before the crisis, such as the low investment in intangibles. In this respect, Italy has received Country Specific Recommendations to focus investment on innovation and research. In line with these recommendations, this paper explores drivers and barriers to investment in Italy, with a focus on intangibles. According to the analysis, tax incentives for innovation (as recently introduced in Italy) have a positive effect on investment, but other factors remain significant barriers to investment. For instance, the analysis confirms the importance of improving non-bank access to finance, consistently with the Country Specific Recommendations of recent years. Well-targeted public investment, as well as a more adequately educated workforce, are also shown to boost private investment in the long run.

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