Research Paper on Italy's Economy: 87th Freest in the World, Businesses Face Challenges

Introduction

According to the Index of Economic forum, Italy ranks 87th freest economy in the world. Italy has numerous small and medium businesses that are owned by families. The privately-owned firms are only able to employ fewer people, which is below the EU average. These firms contribute nearly half of total employment and one-third of value to the economy. Italy generates massive revenue from its imports of products like cars, refined petroleum, and pharmaceuticals. Businesses in Italy face various challenges such as high taxation, stiff employment laws, political meddling, bureaucracy, and active export and import regulations. These papers aim to review Italy's domestic market, global market, government policies, local and universal policies, and trade barriers. Similarly, the paper aims to propose strategies for addressing issues facing business activities in Italy.

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Domestic Market in Italy

The economy of Italy is burdened by bureaucracy, corruption, rigid labor markets, political interference, high taxes, and high cost of doing business, the unproductive judicial system, and complex regulatory structure. Although the country's economy is troubled, its market is fascinating and offers numerous great business opportunities. For example, high-quality customer goods, renewable energies, engineering products, Information and communication technologies, and life sciences. Italy's development lags below the EU average, although domestic consumption appears to be slowly recovering. Italy is a refined and mature manufacturing market. The regulatory environment in Italy is complicated, and sometimes there is an absence of efficiency, certainty, and transparency present in other technologically advanced economies. Goods involving safety, health, or environmental issues mostly are highly regulated. Digitalization rates among firms in Italy are pretty low, and many companies are yet to embrace the internet (Yavas, 2015). In Italy, there is a high level of credit card fraud, narrow broadband connectivity, less favorable return practices of Italian merchants, and the absence of trust in the postal system.

Global Market Review

According to the (ECI) Economic complexity index, Italy is the 20th most challenging economy and the 7th largest export economy. Italy exported $482billion and imported $441billion in the year 2017, giving rise to a positive trade balance of $40.8billion (De Loecker & Eeckhout, 2018). The large imports ranked Italy as the 10th largest importer in the world. Italy's GDP In the year 2017 was $1.93trilion, and its GDP per capita was $39.4thousands (De Loecker & Eeckhout, 2018). In 2018, Italy's GDP grew by 0.9% and was estimated by the Government to grow by 0.2% in 2019 (De Loecker & Eeckhout, 2018). Top products exported by Italy are valves, vehicle parts, refined petroleum, cars, and packaged pharmaceuticals. Italy mostly ships its products to France, United States, United Kingdom, Spain, and Germany. On the other hand, the country's top imports are cars, packaged pharmaceuticals, vehicle parts, petroleum gas, and crude petroleum. These imports mostly originate from China, the Netherlands, France, Spain, and Germany. Italy imported a large number of cards totaling to 7.06% of its total imports, followed by crude petroleum totaling to 5.62% (De Loecker & Eeckhout, 2018). Exports values to Netherlands and Belgium are skewed by the Rotterdam effect, where products are valued upon entry at the port, then dispersed all over the EU. The United States exports goods such as pharmaceuticals (17%), machinery (12%), and aircraft (7%) to Italy. (De Loecker & Eeckhout, 2018)

Domestic and Global Policies

In Italy, leaders promised to shrink unemployment, reduce taxes, tighten law and order, increase state pensions, improve public administration, and present large infrastructure projects. To influence change unreconstructed Communists, generous state pensions, extensive public health service, trade unionists, and old-fashioned Catholics preferring Italians work for life have to be managed.

Italy has currently excluded itself from the EU defense initiative, therefore, missing out on European decision for the country's future security. Italy has been toying with China regarding infrastructure deals within the framework of the Belt and Road Initiative. Italy, for decades, has sustained active business and pleasant relations with the United States and Russia. Until now, Italy has failed to fully align itself with Poland or Hungary on more profound critical positions towards the EU. (Diodato & Niglia, 2019)

Government Policies

Economic Policy

The government offers EUR80 monthly tax credit for low-income earners and the reduction of business taxes. Also, substantial incentives for innovative investments in the industry (Industry 4.0 program) has been introduced. Government policies have motivated local experts to make public investments, which were constrained by internal stability pact previously. The government has reinforced the measure to tackle poverty and reduced the cost of employing youths. The government revised Documento di Economia e Finanza (NADEF) therefore introducing a significant change in budgetary policies, with a higher deficit for preceding years originating from social expenditure, pension costs, and tax reductions increase. The government swore its goal is to fight poverty and offer a robust incentive for the economy, started slowing down in 2018. (Yavas, 2015)

Labor Market Policy

The government started a regular revision of the labor code directed to encouraging firms to adopt more flexible but stable labor contracts. The law has given the government a comprehensive option to define specific labor market customs. It has been convoyed by fiscal methods that make the hiring of new workers more convenient for firms. The government has continued to widen the scope of job act law and the encouragement of new types of a labor contracts. The new agreement of labor increases employers' ability to sack and hire while also inspiring a shift from long term contracts that are risky. The government has introduced quite a several a new measure to reinforce protection for workers on independent workers and short term contract (Diodato & Niglia, 2019). But these new policies expand older workers' employment rates instead of young employees. In 2017 and 2018, the number of employed people rose, mainly due to short term contracts increase. Job act has (national unemployment insurance) known as social insurance benefits for people who lost their job, fails to cover young people who have never been employed. The government has promised to alter these policies by giving more space to the "Cassa di Integrazione"a broad citizenship income to be subordinated to the acceptance of jobs proposed by restructuring employment centers

Tax Policy

Italian tax policy offers narrow incentives and no persuasive reason to affirm revenues. Fighting against and monitoring tax avoidance within this structure is minimal and not yet fruitful. The tax system results in the benefit of non-compliant wage earners. Commercial pressure is ridiculous on companies that pay taxes often and very little on numerous businesses plus a considerable number of independent contractors and self-employed specialists that elude tax. There is high taxation on corporations and labor, thus resulting in fewer job opportunities and new businesses. The government introduced a tax credit for low-income earners in 2014. It also added reduction to the corporation and income taxes and increased the marginal tax on financial assets. New economic measures (fast-tracked write-offs) to boost investments in scientific innovation.

Budgetary Policy

The Italian government has fought to carry on a budget consolidation process commence by the Monti government during a lengthy economic stagnation period. The better environment on European Central Bank and international markets policy has generated high-pitched interest rates decline for Italian long-term treasury bonds erasing budgetary forces. The government has trailed a path of modest economic consolidation balanced by measures to endure economic recovery. Reduction in public expenditure has partly offset incentives for entrepreneurial activities and a decrease in taxes. There is the slow implementation of government spending review proposals of cutting public spending due to fear of recessionary effects. The Italian government plans to increase the 2019 federal deficit to 2.4% contrary to the European Commission earlier agreements and delay reducing public debt to 2010 or 2021. (Lucchese, Nascia & Pianta, 2016)

Research, Innovation and Infrastructure Policy

Research and innovation policies by the Italian government have been less funded, lack coordination, and frail. The plan in place to link University funding to enable excellent research output has been sustained and faintly reinforced. The "Piano Nazionale Industria 4.0" plan for 2017 to 2020 is an effort to catch up with the economic innovation rate in other OECD countries. (Yavas, 2015)

Stabilizing Global Financial System

The government and the Italian bank have rendered support to international and European policies focusing on developing the supervision and regulation of financial markets. Usually, in Italy, the government and the Bank of Italy have chosen a mutual working style within the charter of G7 and EU bodies instead of boarding less coordinated, highly visible initiatives.

Trade Barriers

Importing and exporting in Italy is covered by EU Taxation and Customs Union. There are some technical barriers to trade, such as unfair testing, labeling, and additional certification of commodities. All products being imported to Italy must be labeled in Italian. Before introducing, it is wise to confirm the labeling of all packaging requirements with a local importer to ensure compliance with all elements in the country. Goods such as cosmetics, chemicals, foodstuffs, medicine, and pharmaceuticals might need individual labeling and marking. Certain assets, for instance, agricultural merchandises and products with health, safety, or environmental effects, could be subject to certain import restrictions and regulations. Therefore, import licenses and additional documents may need to be obtained before exporting to Italy. Also, there are border barriers, like complicated custom procedures, incorrect valuation or export classification, troublesome rules of origin.

Strategies to Address Issues Affecting Businesses in Italy

Search for New Markets

Italy is suffering economically after handing over power to the alliance of two grumpy partners; the right-wing populist League and the anti-establishment Five Star Movement (Budge & Laver, 2016). The two-movement are always at each other throat and still competing. For example, leader of the League, Matteo Salvini declared irreconcilable differences with Five Star requested for spontaneous elections. The political crisis affects businesses; most companies selling products are forced to look for a new market elsewhere.

Move the Business to another Country

The Italian government has recently been engaging in battles with the EU and conflict with the world making investors question its credibility (Budge & Laver, 2016). The government has created a problem for all companies in Italy and for itself as a country. Businesses in Italy are highly taxed; for example, a company is required to make 15 payments a year. The government exerts more pressure on companies and individual compliance to tax payment rather than tax-evading businesses. High fees and pressure push businesses beyond their limits forcing it to relocate to a more favorable environment. The Italian government should come up with a way to catch tax...