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Wage and price flexibility, and the structural and institutional reforms required to induce this kind of flexibility, have now become the leading economic issue in Europe. This is not a new development. It has long been argued that structural reforms were a necessary condition for a successful monetary union (Delors, 1989). Nor has this gone unrecognised within Europe itself. The Lisbon Agenda, agreed in 2000, was introduced precisely to create greater market flexibility. [ABSTRACT FROM AUTHOR]

In this chapter, we aim at analysing and evaluating the macroeconomic effects of structural policy measures and of policies of budgetary consolidation. For the former, we build upon the results obtained in Chapter 5 regarding the spillovers from economic reforms that close the efficiency gap between the Euro Area and the US. For the latter, we start from the fact that at present, several Euro Area (and other EU) countries have difficulties in fulfilling the deficit and debt criteria of the Stability and Growth Pact and try to consolidate their budgets. In Chapters 3 and 4, empirical estimates of the spillovers from budgetary policies that increase the surplus of the public budget were provided. Here we will use the MSG3 Model, the most recent version of the McKibbin-Sachs Global Model, to simulate policies which we consider to be feasible (see the Appendix to this chapter, for more information on this model). First, we consider structural and budgetary policies separately, and then we combine both of them. Both isolated (non-coordinated) policy actions of one country only and coordinated (joint) Euro Area policies will be investigated. We will concentrate on isolated policies by Germany and Italy only; effects for France are between these two, and spillovers for a small economy are negligible. In order to arrive at policy recommendations, we will also provide some tentative welfare calculations comparing different scenarios. [ABSTRACT FROM AUTHOR]

The effect of fiscal expansions on interest rates has commanded enormous theoretical interest, but the hypothesis of crowding out has received only some — albeit not very robust — empirical endorsement. Most economists would nevertheless agree with the position that consolidating public finances reduces pressure on long-term interest rates and will be conducive to economic growth in the long run by stimulating private investment (Gale and Orszag, 2003). The crowding out premise is also an important motivation for the consolidation of public finances, as is evident from the policies advocated by both the European Commission and the European Central Bank. [ABSTRACT FROM AUTHOR]

In March 2000, the heads of the European Union countries proclaimed the aim of making Europe the "most competitive and dynamic knowledge-based economy in the world, capable of sustaining economic growth with more and better jobs and greater social cohesion" by 2010. To achieve this overall goal, a set of economic and social reforms called the "Lisbon Strategy" or the "Lisbon Agenda" to be undertaken was defined. Several objectives, grouped in five dimensions (employment, innovation and research, structural economic reforms, social cohesion, environment) were set up. It was agreed upon that the European Commission should annually prepare progress reports in order to evaluate the progress the Member States have made in achieving the Lisbon goals. In its mid-term review in 2005, the European Commission concluded that the implementation of reforms in line with the Lisbon Strategy had in many areas been too slow. In particular, the growth performance of the past five years had been disappointing, particularly as compared to other regions of the world economy such as the US and certain Asian economies. Therefore, the Lisbon Strategy was revised, focussing on growth and the creation of employment (European Commission, 2005 and 2006). [ABSTRACT FROM AUTHOR]

In this chapter we look into the interaction between the level of government debt and the effects of fiscal policy on private consumption in a number of EU-15 countries. Hence, the chapter somewhat deviates from other chapters in the book: We do not focus on economic spillovers between countries, but remain within the country borders. The questions we address are nonetheless valuable ones to evaluate policy coordination. If the transmission of fiscal policy actions depends on the debt level, a common EU-wide fiscal action will differently affect the individual Member States. Or put differently, to achieve a common goal different actions are needed. In addition, a common fiscal target, such as the Maastricht deficit criterion, might be harder to achieve in a country with a higher or lower initial government debt level. On the other hand, dependence of fiscal transmission on the debt level might also be seen as an additional rationale for the debt convergence criterion. [ABSTRACT FROM AUTHOR]

In Chapter 1, it was discussed in detail that there are various spillovers in a highly integrated economic space like the Euro Area. It was explained in which ways these spillovers manifest themselves in the Euro Area e.g. through trade flows, pass-through of inflation, adjustments caused by changes of the common short-term interest rate and the exchange rate of the euro. It was also noted that there exist several spillover effects from monetary and fiscal policies in a highly integrated monetary union like the Euro Area. Monetary and fiscal policies in the Euro Area are intrinsically linked through these spillovers. In the short run, spillovers arise from the effects that monetary policy may have on the macroeconomic conditions under which fiscal policies are undertaken, and vice versa. In the long run, these spillovers/interdependencies arise in particular from the accumulation of government debt. [ABSTRACT FROM AUTHOR]

Macroeconomic policymaking in the European Union's Economic and Monetary Union (EMU) is characterised by an asymmetric division of competences: While monetary policy is conducted centrally by the European System of Central Banks and the European Central Bank (ECB) in particular, structural and fiscal policies remain under the responsibility of the individual Member States, but they are subject to intensive consultation and multilateral surveillance. Article 99 of the EC Treaty calls on Member States to regard their economic policies as a matter of common concern and to coordinate them in the Council, with a view to achieving, inter alia, higher non-inflationary growth and a better standard of living. [ABSTRACT FROM AUTHOR]

Telecommunications is a key element of ICT, and telecommunications regulatory issues have been important in OECD countries for many years. The EU has made progress in telecommunications through the rapid growth of rather unregulated mobile telecommunications (with regulation mainly referring to the licensing process). WELFENS/PONDER (2003) and EITO (2005) have shown that Eastern European countries have considerably caught up in the field of telecommunications. VAN ARK/PIATKOWSKI (2004) have presented evidence that ICT has also contributed to economic catching-up in EU Accession countries. [ABSTRACT FROM AUTHOR]

ICT production continues to be characterized by high growth rates of technological progress, and this largely is due to the interaction of high ICT-intensity of production itself and large economies of scale plus a high R&D-intensity of the sector itself. Sectors using ICT also can be expected to record high rates of productivity growth and of total factor productivity. The use of ICT - often combined with a higher share of skilled workers - will raise productivity in many sectors; to some extent cross-sectoral technology spillovers could play a role. This holds particularly since ICT is a general purpose technology so that progress achieved in sector i in some case should indeed cross-fertilize the progress in sector j (and vice versa). At the same time certain elements of ICT facilitate the diffusion process so that faster diffusion also could help to increase the growth rate. Thus it is a combination of innovation dynamics, higher productivity growth and accelerated diffusion which may be considered as decisive factors of production. [ABSTRACT FROM AUTHOR]

There is no doubt that ICT is a major driver of innovation dynamics in EU countries. Innovation theory suggests that competition generally is conducive to innovation; a natural element of the innovation process is that an innovator is able to fetch a Schumpeterian top-up in the rate of return for the innovation project - this premium is necessary to generate incentives for the innovative company to take on the typically relatively high risk of an innovation project and the associated investment. Typical problems from an innovator perspective concern uncertainty about demand patterns and the uncertainty about counter-innovations from competitors as well as potential extra costs of financing the project. Product innovations are a key element for firms (and countries) to improve competitiveness. As the demand curve will become steeper we will see an increase of consumer welfare. Process innovations might be coupled or associated with product innovations in which case there will be additional consumer benefits. In the context of sustained innovation dynamics in the world economy product innovations are quite important for improved international competitiveness as higher prices fetched in world markets will translate into increased profitability and hence will reinforce the firm's ability to finance investment and innovations in the future. In a macroeconomic perspective high innovation dynamics of a country will translate into international competitiveness and high standards of living. [ABSTRACT FROM AUTHOR]

The European Commission has opened up telecommunications markets in 1998 for several reasons where fear of losing international competitiveness in information and communication technology - considered as crucial for economic growth of the EU - was one major aspect. Another reason was the idea that with digitization and modernization of the telecommunications sector the EU would become a digitally integrated market system with a much more productive use and storage of information and knowledge. The EU countries were largely considered as high wage countries which should specialize more on knowledge intensive and technology intensive products. As globalization increased competitive pressure in labour-intensive production it seemed adequate that member countries of the EU should specialize increasingly on knowledge-intensive and capital-intensive goods and services. The services sector could be expected to expand strongly once that digital outsourcing of services in general and telecommunications services in particular would be cheaper and better. [ABSTRACT FROM AUTHOR]

At the beginning of the 21st century the world economy is shaped by intensified competition and globalization, respectively. Part of expansion and internationalization dynamics are related to information and communication technology (ICT) which is not only stimulating productivity and output growth - and hence trade - but also bringing new eCommunication structures in OECD countries and worldwide. With more broadband networks becoming available in many countries there are novel opportunities for enhanced digital networking and there are additional incentives for digital product innovations. As ICT expansion reduces information and transaction costs it will affect trade and capital flows in the single market and in the world economy. [ABSTRACT FROM AUTHOR]

This paper examines the 2001 ITANES survey data and documents a number of empirical regularities in the media usage of the Italian electorate during the 2001 electoral campaign. Voters that expose themselves predominantly to Mediaset news programs are much more prone to vote for the centre-right coalition and voters that are exposed to RAI news are substantially more likely to vote for the centre-left coalition. Multiple regression analysis shows that this polarization can be partially explained by voters' ideological leaning and opinions on policy issues and has instead much to do with evaluation of the political leaders and trust in the television channels. However, an unexplained higher propensity of Mediaset viewers to vote for Forza Italia persists. The results are used for a reflection on the quality of public deliberation in the Italian democracy. Key words: Media attitude, elections, television. [ABSTRACT FROM AUTHOR]

In Italy, as in many other western countries, a substantial proportion of health care is financed by the public sector. The health care system has been widely reformed and a separation between purchasing and delivering the service has been enforced to mimic the structure of a competitive market in order to improve efficiency. The organization of the internal market can, however, vary among Regions. The aim of this paper is to assess the relative merits of the different forms of organization for secondary care in a context of information asymmetry. We show that both private and public hospitals can pursue objectives that are not compatible with cost minimization. In this environment the role of the purchaser and the Region is fundamental: unless they enforce hard budget constraint rules, the system might end up being a source of deficit which will ultimately undermine the reform and its long-run sustainability. Key words: Internal markets, asymmetry of information, hospital care, privatization, Italy. [ABSTRACT FROM AUTHOR]

Over the last decade in Italy several Independent Authorities (IAs) were created. The relevance of the delegated functions and the variety of sectors involved led lawyers to refer to a "structural redistribution of power within the Italian political-institutional system". As a parliamentary democracy, the issue at stake is the delegation of power to IAs independent from the executive branch and referring only to Parliament. Therefore, IAs are to be viewed as an alternative to the executive branch and to the bureaucracy within it. In terms of the division of powers, IAs can be considered as a kind of fourth branch, though outside any constitutional provision. The paper analyses the Italian IAs from a political economy perspective, aiming at proposing some tentative answers and at providing insights to settle a possible agenda for future research on this subject. A specific case study, the Public Works Authority (PWA), will be analyzed to offer some tentative remarks on the determinants of political decision-making about IAs. Key words: Independent Authorities, delegation, Public Work Authority, political economy. [ABSTRACT FROM AUTHOR]

This study provides an interpretative scheme of the so-called "demand for justice" in Italy. Using a microeconomic model of the choice of litigants, the characteristics of the judicial, legal, and economic systems have been modeled as they influence the decisions of the two parties and may cause opportunistic behavior, which, in their turn, may have an impact on the shape of the two systems. An empirically testable model has been derived from this theoretical framework. The empirical analysis shows that lengthy time-spans and raised costs of associated processes and high market rates have a disincentive effect on recourse to justice, which seems to prevail over that connected to opportunistic behavior of the plaintiff. We do not find evidence for the socalled pathological demand hypothesis, which has been emphasized in recent literature. Key words: Demand for justice, incentives, judicial system. [ABSTRACT FROM AUTHOR]

The paper verifies the effects of reforms in budget approbation rules in Italy during the 1980-2001 periods using a standard public choice model of fiscal performance and nonlinear principal component evaluation of the changes in the degree of stringency of budget rules. While the Italian reforms are evaluated relative to those carried out in other European countries, the model isolates the impact of such reforms on the country's fiscal performance. Key words: budget rules, fiscal performance, nonlinear principal components. [ABSTRACT FROM AUTHOR]

We study the effects of a transition from a parliamentarian to a presidential system on electoral and fiscal policy outcomes. We test the hypothesis that this type of institutional change translates into increased differentiation between the executive and the legislative power and that this has an impact on policy choices. Using pre- and post-reform panel data on elections and fiscal policy from Italian local governments, we exploit a unique natural experiment to provide empirical evidence on the increase in differentiation and to measure the impact of political change on the composition of public spending. We find that the reform fosters political differentiation. Furthermore, political changes are statistically significant determinants of expenditure in the three largest fields of public finance intervention. Key words: Parliamentarism, presidentialism, local elections. [ABSTRACT FROM AUTHOR]

This paper addresses the econometric issues related with spatial estimation in the context of the property tax set by Italian municipalities in 1993-2001. Using a comprehensive dataset of Italian cities, the paper finds that there are no significant differences in tax rates set by municipalities. Key words: Local property tax; Strategic interactions among governments; Yardstick competition; Spatial auto-correlation. [ABSTRACT FROM AUTHOR]

We analyze the effect of differences in legislature size on the number of laws enacted in Italian regions and the relationship between regional public expenditure and laws. According to the theory, legislature size has an indefinite effect on these variables because logrolling and transaction costs may have canceling effects. We find a significantly negative effect of the number of legislators on laws. We also uncover a strong political-cycle effect, which increases legislation in voting years. We use these findings to forecast the effects of the increase in the number of legislators that is taking place in most regions. Key words: Legislature size, law, logrolling. [ABSTRACT FROM AUTHOR]

This chapter analyses the macroeconomic consequences of a "social pact" among the government, trade unions and employers' associations aimed at keeping the growth in domestic wages and prices in line with the government's inflation target in a country belonging to a monetary union. We demonstrate that an outward-looking social pact which targets union-wide inflation can lead employment at the competitive level and eliminating the inflationary (or deflationary) bias in the economy. Key words: Employment, inflation, social pacts, EMU. [ABSTRACT FROM AUTHOR]

This chapter analyses whether joining the EMU succeeded in making the Italian public deficit levels converge towards the values of the two other main EU countries, Germany and France. By means of a time series analysis, we conclude that the evolution of the determinants of the Italian public deficit-to- GDP ratio after Maastricht is closer to the German and French ones. Upon controlling for all the other main variables identified in the theoretical literature on debt creation, we reach the conclusion that the Maastricht provisions are the main drivers of this convergence process, which makes the Italian public finances sensitive to the evolution of the Stability and Growth Pact. Key words: Public deficits, Maastricht Treaty, comparative test. [ABSTRACT FROM AUTHOR]

During the last sixty years, the Italian electoral system has changed three times, trying to find a suitable compromise between governability and representativeness. From 1948 to 1992, the Italian Parliament was elected by proportional representation. From 1993 to 2005, a new mixed electoral system (three quarters of the seats were elected by plurality, while the remaining seats were filled by proportional representation) was adopted. Finally, in December 2005, a new electoral system reintroduced the proportional representation and introduced for the first time a majority prize. The aim of our analysis is twofold. We want to compare the goodness of these electoral systems and, at the same time, to check whether other electoral systems would have provided a better performance. Key words: Italian Parliament, electoral systems, simulations. [ABSTRACT FROM AUTHOR]

Following Havrilesky's seminal work (1995) and its extension by Maier et al. (2002) we construct a monthly index of external influences on Bank of Italy's conduct for the period 1984-1998. This paper describes the index of overall pressure on Italian monetary policy and the five sub-indexes of which it is composed. We evaluate whether Bank of Italy responded to pressure by estimating Taylor rules augmented with the pressure indexes. We conclude that in some cases external pressures did affect Bank of Italy's action. Key words: Policy; Taylor Rule; Pressures on Monetary Policy; Bank of Italy. [ABSTRACT FROM AUTHOR]

The previous two sections have dealt with the main elements of transformation studies and the financial liberalization hypothesis. This section attempts to integrate these two approaches into a framework for the liberalization of the banking sector. [ABSTRACT FROM AUTHOR]

This final chapter summarizes the major findings of the thesis and discusses policy recommendations for banking sector reforms. It also discusses some limitations of the research methodology and the possibility of generalizing the findings. It concludes with some with suggestions for further avenues of research. [ABSTRACT FROM AUTHOR]

In this chapter, the framework and the identified indicators developed in the previous chapter are used to evaluate the liberalization of the banking sectors in India and China. The assessment begins with a qualitative evaluation according to the propositions for liberalizing a banking sector. This is followed by a quantitative evaluation of the process and the results at the sector level. Finally, the overall macroeconomic effects are tested (Table 6). The combined results provide a basis for the discussion of further reform steps in the following chapter. [ABSTRACT FROM AUTHOR]

Transformation studies attempt to explain the trigger, process and results of long-run systemic changes.1 When the transformation in Central and Eastern Europe (CEE) started in 1989, only limited guidance existed on how to manage the transition from a command to a market economy.2 Since then, numerous and often conflicting policy recommendations have been given on how to best manage such transformations. With the benefit of hindsight it is possible to evaluate the validity of these recommendations and assess the historical experience of the transition countries. [ABSTRACT FROM AUTHOR]

Since the seminal works of McKinnon (1973) and Shaw (1973), there has been a considerable body of literature covering the topic of financial liberalization and the importance of the financial sector for the overall economy. A recurring recommendation in these studies is that the direct involvement of the government in the banking sector should be reduced in order to allow the sector to perform its functions better. [ABSTRACT FROM AUTHOR]