The macroeconomics of Europe 2020 reform strategy and the potential effects on Italian economy

In this paper we study the potential effects on the Italian economy of various reform packages in the spirit of the Europe 2020 strategy. By using the version adapted for Italy of the endogenous growth model developed by the DG ECFIN for economic policy evaluation (QUEST III with R&D), through simulations we explore the possible gains in terms of growth, employment, sustainability of public finances and external imbalances of knowledge-oriented, labour and product market reforms. After a review of the theoretical consequences of such reforms, we identify which policy interventions are more likely to be effective in the short, medium and long run. We show that reforms intervening in the policy areas of innovation and knowledge and of internal market are likely to affect GDP and employment especially in the long run, whereas the market labour reforms mainly materialize in the short run.However, we argue that the full realization of the potential benefits of policy interventions, requires an articulated and coordinated reform implementation, demanding a careful analysis of the institutional mechanism in each policy area of intervention and the potential cross-country spillovers.