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Italy’s economy comprises a developed industrial north, dominated by private companies, and a less-developed, highly subsidized, agricultural south, with a legacy of unemployment and underdevelopment. The Italian economy is driven in large part by the manufacture of high-quality consumer goods produced by small and medium-sized enterprises, many of them family-owned. Italy also has a sizable underground economy, which by some estimates accounts for as much as 17% of GDP. These activities are most common within the agriculture, construction, and service sectors.
Italy is the third-largest economy in the euro zone, but its exceptionally high public debt and structural impediments to growth have rendered it vulnerable to scrutiny by financial markets. Public debt has increased steadily since 2007, reaching 131% of GDP in 2017. Investor concerns about Italy and the broader Eurozone crisis eased in 2013, bringing down Italy's borrowing costs on sovereign government debt from euro-era records. The government still faces pressure from investors and European partners to sustain its efforts to address Italy's longstanding structural economic problems, including labor market inefficiencies, a sluggish judicial system, and a weak banking sector. Italy’s economy returned to modest growth in late 2014 for the first time since 2011. In 2015-16, Italy’s economy grew at about 1% each year, and in 2017 growth accelerated to 1.5% of GDP. In 2017, overall unemployment was 11.4%, but youth unemployment remained high at 37.1%. GDP growth is projected to slow slightly in 2018.
Definition: This entry briefly describes the type of economy, including the degree of market orientation, the level of economic development, the most important natural resources, and the unique areas of specialization. It also characterizes major economic events and policy changes in the most recent 12 months and may include a statement about one or two key future macroeconomic trends.
1. What form does Italy's constitution take?
The Constitution forms the fundamental law of the Italian legal system, and provides the legal basis for the administration of public authorities. It was enacted in 1947 by the Constituent Assembly specifically appointed for the task.
The Constitution is:
2. What system of governance is provided for?
-Parliamentary republic
Under the Constitution, Italy is a representative democracy in the form of a parliamentary republic, which is "one and indivisible", meaning that even though decentralisation of powers to local authorities is allowed, the sovereignty powers lie with the state .
-President
The President of the Republic is the head of state elected by Parliament in a joint session of its members and represents national unity.
The President is also the commander-in-chief of the Armed Forces and chairs the Superior Council of the Judiciary.
3. Does the constitution provide for a separation of powers?
The constitutional system provides for the following separation of powers:
The judiciary, which is independent, exercises judicial powers.
Taxation of an individual's income in Italy is progressive. In other words, the higher the income, the higher the rate of tax payable.
In 2018 the tax rate for an individual is between 23%-43%, In addition to direct taxation (IRPEF), there is also a regional tax of 0.7%-3.33% and a municipal tax of 0%-0.9%.
There are reduced rates of tax and tax exemptions available to certain income earners.
The standard rate of Italy corporate tax (IRES) in 2018 is 24%.
In addition, local tax (IRAP) is imposed at a rate of generally 3.9%, bringing the effective tax rate to 27.9%.
Banks and financial companies pay 27.5% corporate tax.
Italy Income Tax for an Individual
An individual is liable for tax on his income as an employee and on income as a self-employed person.
Tax will be payable on income earned in Italy and overseas by an individual who meets the test of a "permanent resident" of Italy.
A foreign resident who is employed in Italy pays tax only on income earned in Italy.
One of two tests must be passed to be considered an Italian resident: a life centered in Italy, or being registered in the Population Registry as living more than 183 days a year in Italy.
It is important to point out as regards taxable income from outside Italy, that a "tax credit" is granted for tax deducted outside Italy.
In the case of income from a salary, the employer is obligated to deduct the amount of tax payable on a monthly basis.
A self-employed person must prepay income tax that will be offset on filing an annual return.
The advance payment is determined on the basis of the return made for the previous year.
In the event of a new business, the advance will be calculated on the basis of estimates made by the owner of the business.
