Issuances 30 60 90 120 120 120 Uses 0 0 30 60 90 120 As detailed the program provides for a significant share of total TRC issuances to be allocated to enterprises with a view to reducing their gross labor costs. This corresponds to a 9% reduction in total Italian companies employee costs (currently about 450 bn p.a.) and significantly € enhances the competitiveness of domestic firms. This would allow higher exports, plus substitution effects of certain import with internal production, to compensate for the higher imports (including of raw materials) that the strong economic recovery led by the TRC program would generate. As already noted, intervening on the gross labor cost would (i) prevent Italy’s external trade balance from deteriorating, and (ii) avoid demand leakages through import that would weaken the effect of the fiscal multiplier. Setting a two-year maturity for TRCs and planning for a gradual attainment of the 120 bn € TRC target, TRC redemptions would stay lower than TRC issuances up to the sixth year of the program (Table 1). In addition to the 150 bn additional real GDP, as estimated above, it is reasonable to predict € that higher inflation will set in as the output gap is progressively reduced. Higher inflation of 1% p.a. would imply more than 100 bn in additional nominal GDP (due to price effects) in six years € (1.700 x 6% = 102). Total nominal GDP would then be higher by more than 250 bn (in 2022) as a € result of the TRC program. As Italy’s gross government revenue as a percent of GDP is currently almost 50%, 250 bn in higher nominal GDP imply 120 bn of higher gross revenues in 2022, € € which would offset the revenue shortfalls due to TRC redemptions. In addition, prior than 2022 the TRC program would generate gross government revenues in excess of rebates, thus allowing for a reduction of the gross public debt / GDP ratio (Table 2): Table 2. TRC Program for Italy: Economic and Fiscal Impact
Issuances 30 60 90 120 120 120 Uses 0 0 30 60 90 120 As detailed the program provides for a significant share of total TRC issuances to be allocated to enterprises with a view to reducing their gross labor costs. This corresponds to a 9% reduction in total Italian companies employee costs (currently about € 450 bn p.a.) and significantly enhances the competitiveness of domestic firms. This would allow higher exports, plus substitution effects of certain import with internal production, to compensate for the higher imports (including of raw materials) that the strong economic recovery led by the TRC program would generate. As already noted, intervening on the gross labor cost would (i) prevent Italy’s external trade balance from deteriorating, and (ii) avoid demand leakages through import that would weaken the effect of the fiscal multiplier. Setting a two-year maturity for TRCs and planning for a gradual attainment of the € 120 bn TRC target, TRC redemptions would stay lower than TRC issuances up to the sixth year of the program (Table 1). In addition to the € 150 bn additional real GDP, as estimated above, it is reasonable to predict that higher inflation will set in as the output gap is progressively reduced. Higher inflation of 1% p.a. would imply more than € 100 bn in additional nominal GDP (due to price effects) in six years (1.700 x 6% = 102). Total nominal GDP would then be higher by more than € 250 bn (in 2022) as a result of the TRC program. As Italy’s gross government revenue as a percent of GDP is currently almost 50%, € 250 bn in higher nominal GDP imply € 120 bn of higher gross revenues in 2022, which would offset the revenue shortfalls due to TRC redemptions. In addition, prior than 2022 the TRC program would generate gross government revenues in excess of rebates, thus allowing for a reduction of the gross public debt / GDP ratio (Table 2): Table 2. TRC Program for Italy: Economic and Fiscal Impact