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### Introduction
- Documents two public sector reforms initiated in 2016:
  - Rationalization of state-owned enterprises (SOEs) (Consolidated Law on SOEs, Legislative decree no. 175/2016).
  - Public procurement reform.
- Motivation:
  - Large number of local SOEs operating inefficiently in sectors with high barriers to competition.
  - Fragmented public procurement system with weak administrative capacity and lack of institutional coordination, hindering public investment effectiveness.
- Structure:
  - Part I: SOE rationalization—law, application results, challenges, and supporting policies.
  - Part II: Public procurement reform—history, performance, impact on public investment, and measures to improve outcomes.
  - Conclusion: broader implications for reform design and implementation.

### II. Rationalization of Public Sector Shareholdings — Overview and Results
- Legal framework and criteria:
  - Consolidated Law on SOEs (Legislative decree no. 175/2016) set qualitative and quantitative criteria for establishment, acquisition, and retention of shareholding.
  - Major rationalization criteria included companies:
    - not indispensable for institutional public goals and/or providing services of general interest;
    - that do not have employees or have more directors than employees;
    - that perform similar activities to other publicly owned companies or instrumental public agencies;
    - with an average turnover, over the previous three years, less than a certain threshold;
    - loss-making for four out of the five preceding years;
    - that need to contain operating costs.
  - Turnover threshold: original decree €1 million; amendment (no. 100/2017) reduced threshold to €500,000 during transition until end-2019.
  - Deadlines: Extraordinary Review by September 2017; rationalization by September 2018 (extended until end-2021 for companies profitable, on average, over the three years preceding the Extraordinary Review).
  - Oversight: annual progress reviews by the Ministry of Economy and Finance (MEF), with inputs from the Competition Authority; sanction system linked to Court of Auditors prerogatives.

- Participation and scope of the Extraordinary Review:
  - 10,695 PAs required to participate; about 87 percent (9,341 PAs) provided information as of September 2017.
  - Nearly 90 percent of responding PAs (some 8,200 PAs) held stakes in companies.
  - Holdings: more than 32,000 shares in nearly 5,700 companies.

- Employment and firm profile:
  - 84 percent of surveyed companies had less than 50 employees.
  - Large-scale enterprises (>250 employees) ≈ 4 percent of companies but represented around 64 percent of total employees.
  - About 1/4 of affiliated companies (1,522 companies) had no employees; of these, 43 percent were inactive, closed, or undergoing insolvency or liquidation proceedings.

- Profitability and fiscal risk:
  - About 54 percent of surveyed companies were profitable on average over 2011–15; total annual profits amounted to €1.9 billion per year.
  - 3 percent broke even.
  - 43 percent registered losses with total annual losses of €1.8 billion per year.
  - Net implied total annual profits: €136 million per year (average annual profit of around €25,000 per company).
  - Turnover threshold relevance: about 43 percent of affiliated companies with turnover data had a three-year average turnover below the €500,000 threshold.

### II.C PA Intentions, MEF Assessment, and Implementation Progress (key figures as of September 30, 2018)
- PA-stated intentions:
  - PAs declared intention to divest about 25 percent of total holdings — 7,845 shares.
  - Nearly 10 percent of total shareholding are in companies already undergoing liquidation.
  - About 65 percent of total shares PAs indicated intention to retain.

- MEF assessment:
  - MEF concluded about 18,124 shares (affecting nearly 4,377 companies) should be rationalized — more than twice the number reported by PAs.
  - Among 21,037 holdings PAs intend to retain, nearly 40 percent (around 8,000 shares) do not appear to comply with legal criteria.
  - Causes of non-compliance among retained shares:
    - nearly 80 percent due to violation of quantitative and efficiency criteria;
    - about 11 percent due to non-compliance with scope of services of general interest;
    - about 10 percent due to failure to meet both criteria.

- Implementation perimeter and outcomes:
  - Perimeter of the exercise:
    - Number of PAs: 10,695
    - PAs that disclosed: 9,341
    - PAs that hold shares in companies: 8,201
    - Number of companies: 5,693
    - Number of shares: 32,427
    - Number of employees: 299,902
  - PAs reporting they will rationalize: 3,479 PAs; 2,586 companies; 7,845 shares; 130,851 employees.
  - PAs reporting they will not rationalize: 7,607 PAs; 3,312 companies; 21,037 shares; 226,943 employees.
  - PAs with shareholdings in listed companies (exempted): 430 PAs; 484 companies; 71 shares; N/A employees.
  - PAs with shareholdings in companies already undergoing liquidation: 2,020 PAs; 790 companies; 3,074 shares; 11,794 employees.

- Progress by September 30, 2018:
  - PAs reporting intention to rationalize by September 30, 2018: 1,792 PAs; 1,454 companies; 3,463 shares; 63,898 employees.
  - Procedures completed positively: 553 PAs; 392 companies; 750 shares; €431 million amount; 27,677 employees.
  - Procedures concluded negatively: 388 PAs; 323 companies; 591 shares; €13,328 amount.
  - Procedures in progress: 578 PAs; 497 companies; 839 shares; €17,213 amount.
  - Procedures not yet started: 784 PAs; 723 companies; 1,283 shares; €36,560 amount.
  - Overall rationalization success by Sep 30, 2018: only 750 shares in 392 companies rationalized successfully — about 2 percent of total shareholdings declared by PAs.
  - Divestment revenues from successful rationalizations: around €430 million.
  - Number of employees in companies successfully rationalized accounted for about 9 percent of total employees in companies with shares held by PAs.

- Factors hindering progress:
  - Lack of specific procedures for transfers of holdings; requirement only of “principles of opening to the public, transparency, and non-discrimination” with negotiated sales allowed under exceptional factors.
  - Difficulties reconciling transparency rules with market practices and identifying appropriate divestment procedures.
  - 2019 budget amendment permitting PAs to retain shares until end-2021 for companies profitable on average over prior three years likely reduces cases subject to rationalization by one-third (MEF estimate).
  - Limited enforcement of sanctions; little progress against non-compliant or non-reporting PAs.
  - Legal ambiguity: lack of clear definitions for “turnover” and “services of general public interest” produced inconsistent applications; service-of-general-interest criterion limited the number of SOEs to be rationalized and often superseded other criteria.

### II.D Recommendations for Successful SOE Rationalization
- Ensure transparent and consistent application of shareholding rules:
  - Issue clear guidelines on definitions of “services of general interest” and business “turnover” and apply them consistently across PAs and affiliated companies.
- Provide clear divestment options and procedures:
  - MEF should provide technical guidance on divestment options, associated costs and benefits, required procedures, and mitigating measures (e.g., employment).
  - Guidance should discuss suitability of different sale methods depending on company characteristics and government objectives.
- Strengthen enforcement mechanisms:
  - MEF, Competition Authority, and Court of Auditors should take stronger roles in ensuring PAs provide required information, comply with legal criteria, and implement rationalization plans.
  - Apply sanctions systematically and consistently rather than case-by-case.
- Avoid weakening reform objectives:
  - Adapt policies and procedures as needed, but avoid backtracking on core reform objectives; consider periodic reviews (for example, every 5 years) rather than ad-hoc legislative changes.
- Implement complementary policies to enhance SOE performance:
  - Facilitate consolidation of local public services where appropriate.
  - Enhance governance and performance reporting of these companies.
  - Ensure a level playing field between public and private businesses.
- Labor considerations:
  - Consult and negotiate with labor groups early; possible practices include resisting unconditional grandfathering of civil servant rights, honoring existing contracts (with caveats), providing employment and benefit protection over transitory periods, retraining, and social safety nets — noting over 1/4 of SOEs have no employees.

### III. Public Procurement Reform — Context, Reforms, and Performance
- Public investment trend:
  - Fell from 3 percent of GDP in 2008 to 2 percent of GDP in 2017 (euro area average: 2.6 percent of GDP).
- Systemic procurement issues:
  - Fragmentation of legal framework, low administrative capacity, lack of coordination among institutions.
  - Procurement procedures complex and lengthy with insufficient competition and high usage of negotiated procedures without publication of a notice.
  - EC Single Market Scoreboard (2015) example: many procurement procedures finalized with only one offer (30 percent, compared to the EU median).

- Legislative milestones:
  - 2016 Public Procurement Code (Legislative decree No. 50/2016): transposition of Directives 2014/24/EU, 2014/25/EU, 2014/23/EU; established MEAT preference, ANAC powers, qualification system, design and execution rules, voluntary company rating system, and reliance on soft laws.
  - 2017 amending decree: 450 changes including raising low-price threshold from €1 million to €2 million, maximum weight of 30 percent for price under MEAT, company rating used at tender assessment stage, ANAC legal actions.
  - 2019 “Unblocking Construction Works” Emergency Decree: temporary simplifications and suspensions (suspended until December 2020 unless Parliament decides otherwise), including return to single regulation, cancellation of €2 million threshold, suspension of some ANAC register requirements, and permanence of some 2019-budget temporary changes.

### Public procurement performance indicators and empirical impact on public investment
- EC Single Market Scoreboard overall score (index range -14 to 14):
  - Italy recent overall score: around -3.33 (countries scoring below -3 viewed as having weak public procurement performance).
- Key performance weaknesses:
  - Decision speed:
    - Italy: about half-a-year between deadline for receiving offers and contract award.
    - EU average: just above three months.
    - Threshold for good performance: four months.
    - Decision speed worsened in 2018 by about 10 days despite a mild declining trend.
  - Single-bidder contracts:
    - Share of about 1/3 of total awarded contracts in Italy.
    - This is 5 percent higher than the EU average and more than 20 percent higher than the threshold considered good practice.
  - Negotiated contracts without a call for bids: share slightly higher than good practice threshold.
  - SME contractors:
    - Share about 38 percent of contractors in Italy, or 2/3 of the EU average and the threshold for being a good performer.

- Empirical analysis linking procurement performance to public investment:
  - Dependent variable: gross fixed capital formation of the government sector as a share of GDP.
  - Main explanatory variable: overall public procurement performance score from EC’s Single Market Scoreboard (PP).
  - Panel: 30 European countries over 2015–2018 and cross-section of three-year average data.
  - Main regression result:
    - A one-point increase in the overall public procurement performance score is associated with an increase in public investment of about 0.05 to 0.07 percentage points of GDP.
    - Results robust to inclusion of public investment efficiency (PIE-X) and interaction terms.
  - Potential gains for Italy:
    - Current overall score: -3.33.
    - Improvement towards best performer (Sweden, 2018 level 6.7) associated with 0.4–0.7 percentage points of GDP increase in public investment, depending on specification.
    - Improvement towards median performer (Belgium, 2018 level 1.3) associated with around 0.2–0.3 percentage points of GDP increase in public investment.
    - Caveat: estimated gains represent an average impact; country-specific institutional characteristics may modify effects.

- Selected regression coefficient highlights (from Table 6):
  - L.Public investment (percent of GDP): 0.526***, 0.527***, 0.491***, 0.478*** (columns 1–4 pooled); 0.071**, 0.076*, 0.060* (interaction terms in some specifications).
  - L.Public procurement performance Score: 0.046**, 0.052*, 0.049**, 0.071**, 0.076*, 0.060* (various columns).
  - L.Output gap (percent): -0.239***, -0.241***, -0.189**, -0.190**, -0.611***, -0.616***, -0.531***, -0.535***.
  - L.Real GDP growth (percent): 0.000**, 0.000*, 0.000*, 0.000*.
  - L.Real long-term bond yield (percent): -0.107*, -0.094, -0.051, -0.052, -0.218*, -0.170, -0.117, -0.134.
  - L.GG Gross debt (percent of GDP): -0.008*, -0.008*, -0.005, -0.006, -0.027***, -0.029***, -0.028***, -0.027***.
  - Ln(L.Share of old age: percent of total pop.): coefficients range from -0.849 to -3.072**, significant in some specifications.
  - Observations: 90, 90, 81, 81 (pooled) and 30, 30, 27, 27 (3Y-average); # countries: 30, 30, 27, 27; R2 ranges from 0.654 to 0.841.
  - Note: * p<0.1  ** p<0.05  *** p<0.01.

### III.C Policy recommendations to overcome procurement challenges
- Immediate priorities:
  - Resolve opposition to contracting authority system via financial support and technical guidance to hire qualified staff at local authorities.
  - Clarify binding nature of some soft laws to reduce legal uncertainties by identifying those with force of law.
  - Streamline ANAC soft laws in consultation with operators to reduce complexity while maintaining transparency.
  - Implement the enterprise/company rating system with support to contracting authorities in resources.
  - Require tender-selection board members be drawn from the national register of ANAC.
  - Return to the ban of negotiated procedures without prior publication of a contract notice.
  - Re-establish the primacy of MEAT over the lowest price criterion.
  - Suspend the prohibition of joint contracts (as recommended in the text).

- Broader administrative reforms:
  - Build political momentum and consensus: foster consultation by ministries and regulatory agencies with stakeholders, publish consultation results, reveal parties consulted, use impact analyses and benchmarking to communicate benefits.
  - Aim for simplicity and clarity in reform design; implement secondary legislation expediently.
  - Publish key performance indicators transparently; avoid backtracking; consider periodic reviews (e.g., every 5 years).
  - Consider enforcement mechanisms during reform design and implement with coordination across agencies and government levels.
  - Address fragmentation of responsibilities, lack of coordination, and policy incoherence which undermine reform effectiveness.

### IV. Lessons and Overall Recommendations (synthesis)
- Design reforms with clarity, simplicity, and a credible implementation strategy; avoid piecemeal legislative changes that reverse or weaken reform objectives.
- For SOE rationalization:
  - Provide unambiguous definitions, clear divestment procedures, stronger enforcement, complementary governance measures, and labor-transition arrangements.
- For procurement reform:
  - Strengthen public demand (contracting authorities), clarify and streamline regulatory instruments (including the role of ANAC and soft laws), restore MEAT primacy, limit negotiated procedures without publication, implement company rating and ANAC register mechanisms, and improve coordination across levels of government.
- Both reform tracks require:
  - Stronger oversight and enforcement (MEF, Competition Authority, Court of Auditors, ANAC).
  - Transparent performance indicators and periodic reviews (e.g., every 5 years).
  - Political commitment and stakeholder consultation to sustain momentum and manage transitional costs.

*Source: wpiea2020040-print-pdf - INTRODUCTION ___________________________________________________________3*

### INTRODUCTION ___________________________________________________________3

### INTRODUCTION

### II. RATIONALIZATION OF PUBLIC SECTOR SHAREHOLDINGS
- Overview of the Reform of SOEs
- The Review of Public Sector Shareholdings
- Progress and Challenges in Public Shareholding Rationalization
- Recommendations for Successful Implementation
- Associated figures and tables:
  - Figure 1. Employment and Profitability of Companies Held by PAs
  - Table 1. Shareholdings and Companies Held by PAs, by Sector of Activity
  - Table 2. Summary of the Extraordinary Review
  - Table 3. Rationalization Methods Considered by the PAs
  - Table 4. The MEF’s Assessment vs PA Intentions
  - Table 5. Rationalization Progress
  - Figure 2. Divestment/Rationalization Options and Procedures

### III. PUBLIC PROCUREMENT REFORM
- Recent History of Public Procurement Reforms
- Public Procurement Performance in Italy
- Impact of Public Procurement on Government Investment
- Overcoming Public Procurement Challenges
- Associated figure:
  - Figure 3. The EC’s Single Market Scoreboard of Public Procurement Performance

### IV. LESSONS AND OVERALL RECOMMENDATIONS
- Consolidated lessons from sections II and III
- Overall recommendations synthesizing rationalization of public shareholdings and procurement reform

*Source: wpiea2020040-print-pdf - INTRODUCTION ___________________________________________________________3*

### 6. Public Investment Regression Results  ________________________________________23

### 6. Public Investment Regression Results

### I. Introduction
- Successive Italian governments enacted nearly a dozen major initiatives toward modernization and simplification of public administration (EC, 2018), but reform implementation has been slow and public sector performance remains relatively weak compared to the EU average (EC, 2019; OECD, 2019).
- This paper documents two public sector reforms initiated in 2016:
  - Rationalization of state-owned enterprises (SOEs) (Consolidated Law on SOEs, Legislative decree no. 175/2016).
  - Public procurement reform.
- Motivation:
  - Italy has a large number of local SOEs, many operating inefficiently in sectors with high barriers to competition.
  - The public procurement system is fragmented, with weak administrative capacity and lack of institutional coordination, hindering public investment effectiveness.
- Structure:
  - Part I: SOE rationalization—law, application results, challenges, and supporting policies.
  - Part II: Public procurement reform—history, performance, impact on public investment, and measures to improve outcomes.
  - Conclusion: broader implications for reform design and implementation.

### II. Rationalization of Public Sector Shareholdings

#### A. Overview of the Reform of SOEs
- Consolidated Law on SOEs (part of the Madia reform) enacted in mid-2016 (Legislative decree no. 175/2016).
- Defined qualitative and quantitative criteria for establishment, acquisition, and retention of shareholding in SOEs, including requirement that PAs ensure a direct link with institutional goals and provide services of a public good nature in a cost-effective and financially sustainable manner.
- Major rationalization criteria included companies:
  - that are not classified as indispensable for pursuing institutional public goals and/or providing services of general interest;
  - that do not have employees or have more directors than employees;
  - that perform similar activities to those carried out by other publicly owned companies or by instrumental public agencies;
  - with an average turnover, over the previous three years, less than a certain threshold;
  - that have been loss-making for four out of the five preceding years;
  - that need to contain operating costs.
- Turnover threshold details:
  - Original decree set threshold at €1 million.
  - Amendment decree (no. 100/2017) reduced threshold to €500,000 during the transition period until end-2019.
- Deadlines:
  - PAs mandated to carry out an Extraordinary Review by September 2017 and complete rationalization by September 2018.
  - Rationalization deadline subsequently extended until end-2021 for companies profitable, on average, over the three years preceding the Extraordinary Review.
- Oversight:
  - Annual progress reviews supervised by the Ministry of Economy and Finance (MEF), with inputs from the Competition Authority, and a sanction system linked to the prerogatives of the Court of Auditors.

#### B. The Review of Public Sector Shareholdings — Results and Profile
- Participation and scope:
  - Out of 10,695 PAs required to participate in the Extraordinary Review, about 87 percent (9,341 PAs) provided information as of September 2017.
  - Out of PAs that responded, nearly 90 percent, or some 8,200 PAs, held stakes in companies.
  - The review established holdings of more than 32,000 shares in nearly 5,700 companies.
- Sectoral distribution:
  - Shareholdings spanned all sectors, with emphasis on the tertiary sector including professional and business services (see Table 1 in source).
- Employment profile:
  - 84 percent of surveyed companies had less than 50 employees.
  - Large-scale enterprises (more than 250 employees) represented about 4 percent of the companies held; however, these companies represented around 64 percent of total employees.
  - About 1/4 of affiliated companies (1,522 companies) had no employees; of these, 43 percent were inactive, closed, or undergoing insolvency or liquidation proceedings.
- Profitability and fiscal risk:
  - About 54 percent of surveyed companies were profitable on average over 2011–15; total annual profits amounted to €1.9 billion per year.
  - 3 percent broke even.
  - 43 percent registered losses with total annual losses of €1.8 billion per year.
  - Net implied total annual profits: €136 million per year (average annual profit of around €25,000 per company).
- Turnover threshold relevance:
  - About 43 percent of affiliated companies for which turnover data were available had a three-year average turnover below the €500,000 threshold.

#### C. PA Intentions vs. MEF Assessment; Implementation Progress
- PA-stated intentions:
  - PAs declared intention to divest about 25 percent of their total holdings — 7,845 shares.
  - Nearly 10 percent of total shareholding are in companies already undergoing liquidation.
  - About 65 percent of total shares PAs indicated intention to retain.
- MEF assessment:
  - MEF concluded about 18,124 shares (affecting nearly 4,377 companies) should be rationalized — more than twice the number reported by PAs.
  - Among 21,037 holdings PAs intend to retain, nearly 40 percent (around 8,000 shares) do not appear to comply with legal criteria.
  - Causes of non-compliance among retained shares:
    - nearly 80 percent due to violation of quantitative and efficiency criteria;
    - about 11 percent due to non-compliance with scope of services of general interest;
    - about 10 percent due to failure to meet both criteria.
- Interpretation challenges:
  - Lack of clear definitions in law for “turnover” and “services of general public interest” produced inconsistent applications across PAs.
  - The service-of-general-interest criterion substantially limited the number of SOEs to be rationalized and superseded other criteria.
  - Among companies to be retained: about 20 percent were loss-making and about 60 percent had a three-year average turnover below €500,000.
- Implementation outcomes by September 30, 2018:
  - Perimeter of the exercise:
    - Number of PAs: 10,695
    - PAs that disclosed: 9,341
    - PAs that hold shares in companies: 8,201
    - Number of companies: 5,693
    - Number of shares: 32,427
    - Number of employees: 299,902
  - PAs reporting they will rationalize: 3,479 PAs; 2,586 companies; 7,845 shares; 130,851 employees.
  - PAs reporting they will not rationalize: 7,607 PAs; 3,312 companies; 21,037 shares; 226,943 employees.
  - PAs with shareholdings in listed companies (exempted): 430 PAs; 484 companies; 71 shares; N/A employees.
  - PAs with shareholdings in companies already undergoing liquidation: 2,020 PAs; 790 companies; 3,074 shares; 11,794 employees.
  - By September 30, 2018:
    - PAs reporting intention to rationalize by September 30, 2018: 1,792 PAs; 1,454 companies; 3,463 shares; 63,898 employees.
    - Procedures completed positively: 553 PAs; 392 companies; 750 shares; €431 million amount; 27,677 employees.
    - Procedures concluded negatively: 388 PAs; 323 companies; 591 shares; €13,328 amount; employees  (table shows negative conclusions representing failed divestments).
    - Procedures in progress: 578 PAs; 497 companies; 839 shares; €17,213 amount.
    - Procedures not yet started: 784 PAs; 723 companies; 1,283 shares; €36,560 amount.
  - Overall rationalization success by Sep 30, 2018: only 750 shares in 392 companies rationalized successfully — about 2 percent of total shareholdings declared by PAs.
  - Divestment revenues from successful rationalizations: around €430 million.
  - Number of employees in companies successfully rationalized accounted for about 9 percent of total employees in companies with shares held by PAs.
- Factors hindering progress:
  - Lack of specific procedures for transfers of holdings; law required “principles of opening to the public, transparency, and non-discrimination” but allowed negotiated sales under exceptional factors.
  - PAs reported difficulties reconciling transparency rules with market practices and identifying appropriate divestment procedures.
  - Amendment in the 2019 budget permitting PAs to retain shares until end-2021 for companies profitable on average over prior three years likely reduces cases subject to rationalization by one-third (MEF estimate).
  - Enforcement of sanctions has been limited; little progress against non-compliant or non-reporting PAs.

#### D. Recommendations for Successful Implementation
- Ensure transparent and consistent application of shareholding rules:
  - Issue clear guidelines on definitions of “services of general interest” and business “turnover” and apply them consistently across PAs and affiliated companies.
- Provide clear divestment options and procedures:
  - MEF should provide technical guidance on divestment options, associated costs and benefits, required procedures, and mitigating measures (e.g., employment).
  - Guidance should discuss suitability of different sale methods depending on company characteristics and government objectives.
- Strengthen enforcement mechanisms:
  - MEF, Competition Authority, and Court of Auditors should take stronger roles in ensuring PAs provide required information, comply with legal criteria, and implement rationalization plans.
  - Apply sanctions systematically and consistently rather than case-by-case.
- Avoid weakening reform objectives:
  - Adapt policies and procedures as needed, but avoid backtracking on core reform objectives; consider periodic reviews (for example, every 5 years) rather than ad-hoc legislative changes.
- Implement complementary policies to enhance SOE performance:
  - Facilitate consolidation of local public services where appropriate.
  - Enhance governance and performance reporting of these companies.
  - Ensure a level playing field between public and private businesses.
- Labor considerations:
  - Consult and negotiate with labor groups early; practices may include resisting unconditional grandfathering of civil servant rights, honoring existing contracts (with caveats), providing employment and benefit protection over transitory periods, retraining, and social safety nets as appropriate — noting over 1/4 of SOEs have no employees.

### III. Public Procurement Reform

#### A. Recent History and Context
- Public investment (share of GDP) trend:
  - Fell from 3 percent of GDP in 2008 to 2 percent of GDP in 2017 (euro area average: 2.6 percent of GDP).
  - While private investment has recovered since 2014, public investment continued to decline.
- Contributing factors to low public investment:
  - Central and sub-national governments have failed to use all available funds for public investment owing to slow execution.
  - An inefficient public procurement system characterized by repeated changes to the procurement code and uneven and slow reform implementation, creating difficulties in project preparation and execution (EC, 2018a; MEF, 2019b).
- Systemic issues in procurement:
  - Fragmentation of legal framework, low administrative capacity, and lack of coordination among institutions (EC, 2016).
  - Procurement procedures have been complex and lengthy with insufficient competition and high usage of negotiated procedures without publication of a notice.
  - Example from EC Single Market Scoreboard (2015): many procurement procedures finalized with only one offer (30 percent, compared to the EU median — source text truncated in PDF).

*Italic line with source attribution from the chapter.*

### 23.6 percent); decision periods were long (210 days, compared to the EU average of 89 days); and the value of

### Public Procurement Performance in Italy

### Legislative reforms: 2016 Public Procurement Code, 2017 amendments, and 2019 emergency decree
- Three significant changes over the past four years introduced via legislative decrees No. 50/2016, 56/2017, and 32/2019.
- 2016 Public Procurement Code (transposition of Directives 2014/24/EU, 2014/25/EU, 2014/23/EU):
  - Set standard time frames and conditions for participation, criteria for awarding tenders, legal recourses, and appeal processes.
  - ANAC (Autorità Nazionale AntiCorruzione) powers: 1) oversee public procurement and contracts; 2) collect, analyze and publish all relevant procurement data; 3) issue implementing regulation with the power of soft laws.
  - Focus on quality: programming, contracting authorities, businesses, selection methods; “most economically advantageous tender” (MEAT) preferred over “lowest price”.
  - MEAT use encouraged; low-price allowed only in certain cases (e.g., contracts < €1 million).
  - Assessment of MEAT awarding conducted by a board of experts chosen from a register of public-tender board members (establishment of register delayed by ANAC to mid-2019).
- Changes to public demand side under the code:
  - Increased discretion for contracting authorities to choose tendering procedures (open, restricted, negotiated with competitive bids).
  - Qualification system for contracting authorities managed by ANAC to assess operational autonomy and professional capacity; qualification applied for a five-year period; some authorities qualified by right (Ministry of Infrastructure and Transport, CONSIP S.p.a, INVITALIA S.p.a, regional aggregating agencies).
  - Requirements for detailed plans of public works, preliminary technical and financial feasibility studies, execution plans, separate design and execution parties except in special cases.
- Changes to supply side:
  - Voluntary company rating system based on past performance (time adherence, costs, disputes); contracting authorities to provide performance assessments using ANAC methodology; final rating released by ANAC used in tender qualification.
- Changes to regulating instruments:
  - Shift to flexible secondary legislation via guidance documents (soft laws): ministry decrees, binding ANAC guidelines, nonbinding ANAC guidelines; roughly 50 supplementary soft law acts envisaged.
- 2017 amending decree (450 changes to 2016 code):
  - Increased threshold for low-price criterion from €1 million to €2 million.
  - Expanded circumstances for joint contracts and transition provisions for projects with final design approved 12 months before 2016 code.
  - Increased documentation period for contractor certification from 5 to 10 years.
  - Company rating mechanism to be used at tender assessment stage (not qualification stage).
  - Set maximum weight of 30 percent for price component under MEAT.
  - Authorized ANAC to take legal action to challenge tenders; ANAC may appeal to an administrative judge within 30 days after a 60-day compliance deadline.
- 2019 “Unblocking Construction Works” (Emergency) Decree:
  - Only half of approximately 60 acts from 2016/2017 codes had entered into force (PBO, 2019).
  - Temporary allowance (2019 budget) for contracting authorities to allocate public works for low-value contracts between €40,000 and €150,000 without competitive procedures, subject to consultations with three experts; around 48 percent of public works contracts fell in this range in 2018 with a value of about 5 percent of total public works (PBO, 2019).
  - Emergency decree simplifications (suspended until December 2020 unless Parliament decides otherwise):
    - Return to a single regulation for execution, implementation and integration of procurement code, replacing ANAC guidelines and ministerial decrees.
    - Cancellation of €2 million threshold from 2017 decree: contracting authorities could choose low-price or MEAT without justification.
    - Suspension until December 2020 of obligation to choose experts from ANAC register to assess MEAT; ban of joint contracts suspended; Government to report to Parliament by November 2020 on effects.
    - 2019 budget temporary changes made permanent allowing contracts valued between €150,000 and EU thresholds to be carried out without publication of a contract notice.
    - Period of validity of contracting authority certification increased from 10 to 15 years.
    - Share of contracts that can be subcontracted raised from 30 to 40 percent; some subcontractor selection procedures suspended (e.g., obligation to identify three subcontractors, obligation to verify specific requirements).

### Public procurement performance indicators and findings
- Italy’s overall score on the EC’s Single Market Scoreboard (index range -14 to 14):
  - Recent overall score: around -3.33 (countries scoring below -3 viewed as having weak public procurement performance).
- Key performance weaknesses (Figure 3 descriptions and text):
  - Decision speed:
    - Italy takes about half-a-year between the deadline for receiving offers and the date a contract is awarded.
    - EU average: just above three months.
    - Threshold for good performance: four months.
    - Decision speed worsened in 2018 by about 10 days despite a mild declining trend in recent years.
  - Single-bidder contracts:
    - Share of about 1/3 of total awarded contracts in Italy.
    - This is 5 percent higher than the EU average and more than 20 percent higher than the threshold considered good practice.
  - Negotiated contracts without a call for bids:
    - Share is slightly higher than the good practice threshold.
  - SME contractors:
    - Share of about 38 percent of contractors in Italy, or 2/3 of the EU average and the threshold for being a good performer.
    - Limited SME participation suggests barriers: red tape, biased calls for tender, low capacity among smaller firms.

### Impact of public procurement performance on government investment — empirical analysis
- Empirical specification:
  - Dependent variable: gross fixed capital formation of the government sector as a share of GDP (public investment).
  - Main explanatory variable: overall public procurement performance score from EC’s Single Market Scoreboard (PP).
  - Controls: lagged public investment, macroeconomic factors (real GDP growth, output gap, GDP per capita), fiscal conditions (public debt, long-term sovereign borrowing costs, primary balance), demographic (share of old-age population), political economy variables (political orientation, election cycle), and in some specifications governance/institutional quality and public investment efficiency (PIE-X).
  - Panel of 30 European countries (EU-28, Liechtenstein, Norway) over 2015–2018 and cross-section of three-year average data.
  - Note: limited observations; country fixed effects not used; additional controls added to limit omitted variables bias.
- Main regression result:
  - A one-point increase in the overall public procurement performance score is associated with an increase in public investment of about 0.05 to 0.07 percentage points of GDP.
  - Results robust to inclusion of public investment efficiency (PIE-X) and interaction terms; better procurement supports the positive impact of public efficiency on public investment.
- Potential gains for Italy from improving procurement performance:
  - Current overall public procurement performance score: -3.33.
  - Improvement towards best performer (Sweden, 2018 level 6.7) associated with 0.4–0.7 percentage points of GDP increase in public investment, depending on specification.
  - Improvement towards median performer (Belgium, 2018 level 1.3) associated with around 0.2–0.3 percentage points of GDP increase in public investment.
  - Caveat: estimated gains represent an average impact; country-specific institutional characteristics may modify effects.

- Selected regression coefficient highlights (from Table 6):
  - L.Public investment (percent of GDP): 0.526***, 0.527***, 0.491***, 0.478*** (columns 1–4 pooled); 0.071**, 0.076*, 0.060* (interaction terms in some specifications).
  - L.Public procurement performance Score: 0.046**, 0.052*, 0.049**, 0.071**, 0.076*, 0.060* (various columns).
  - L.Output gap (percent): -0.239***, -0.241***, -0.189**, -0.190**, -0.611***, -0.616***, -0.531***, -0.535***.
  - L.Real GDP growth (percent): 0.000**, 0.000*, 0.000*, 0.000* (statistically significant small coefficients).
  - L.Real long-term bond yield (percent): -0.107*, -0.094, -0.051, -0.052, -0.218*, -0.170, -0.117, -0.134 (various specifications).
  - L.GG Gross debt (percent of GDP): -0.008*, -0.008*, -0.005, -0.006, -0.027***, -0.029***, -0.028***, -0.027***.
  - Ln(L.Share of old age: percent of total pop.): coefficients range from -0.849 to -3.072**, significant in some specifications.
  - Observations across specifications: 90, 90, 81, 81 (pooled) and 30, 30, 27, 27 (3Y-average); # countries: 30, 30, 27, 27; R2 ranges from 0.654 to 0.841.
  - Note: * p<0.1  ** p<0.05  *** p<0.01.

### Overcoming public procurement challenges — urgent tasks and policy recommendations
- General lesson: design good reforms and follow through consistently and speedily; avoid piecemeal amendments that reverse reform direction and add uncertainty.
- Specific urgent tasks for Italy’s procurement reform implementation:
  - Resolve opposition to the system of contracting authorities through financial support and technical guidance in hiring qualified staff by local authorities to professionalize public demand.
  - Clarify the binding nature of some soft laws to reduce legal uncertainties by clearly identifying those that have the force of law.
  - Streamline soft laws issued by ANAC in consultation with operators concerned about undue complexity; balance simplification and transparency regardless of regulatory form.
  - Implement the enterprise/company rating system with support to contracting authorities in instrumental and professional resources.
  - Require that board members for tender selection be drawn from the national register of ANAC.
  - Return to the ban of negotiated procedures without prior publication of a contract notice.
  - Re-establish the primacy of MEAT over the lowest price criterion.
  - Suspend the prohibition of joint contracts (as recommended in the text).
- Broader administrative reform recommendations:
  - Build political momentum and consensus: foster consultation by ministries and regulatory agencies with stakeholders, publish consultation results, reveal parties consulted, use impact analyses and benchmarking to communicate benefits of reforms.
  - Aim for simplicity and clarity in reform design; implement secondary legislation expediously.
  - Publish key performance indicators transparently; avoid backtracking; consider periodic reviews (e.g., every 5 years) as oversight instruments.
  - Consider enforcement mechanisms during the design phase and implement with coordination across agencies and government levels.
  - Address fragmentation of responsibilities, lack of coordination, and policy incoherence which undermine reform effectiveness.

*Source: wpiea2020040-print-pdf (excerpts).*

### REFERENCES

### REFERENCES

### Academic studies on public investment and macroeconomic effects
- Abiad, A., D. Furceri, and P. Topalova, 2016, “The Macroeconomic Effects of Public Investment: Evidence from Advanced Economies”, Journal of Macroeconomics, 50, pp.224–240.
- Bacchiocchi, E., E. Borghi, and A. Missale, 2011, “Public Investment under Fiscal Constraints”, Fiscal Studies, 32(1), pp.11–42.
- de Haan, J., J. E. Sturm, and B. J. Sikken, 1996, “Government Capital Formation: Explaining the Decline”, Weltwirtschaftliches Archiv, 132(1), pp.55-74.
- Decarolis F., G. Palumbo, 2011, “La rinegoziazione dei contratti di lavori pubblici: un’analisi teorica e empirica”, In: Banca d’Italia, Le infrastrutture in Italia: dotazione, programmazione, realizzazione. Roma, 489-519.
- Denizer, C., D. Kaufmann, and A. Kraay, 2013, “Good Countries or Good Projects? Macro and Micro Correlates of World Bank Project Performance”, Journal of Development Economics, 105, pp.288-302.
- Grigoli, F., and Z. Mills, 2014, “Institutions and Public Investment: An Empirical Analysis”, Economics of Governance, 15(2), pp.131–153.
- Heinemann, F., 2006, “Factor Mobility, Government Debt and The Decline in Public Investment”, International Economics and Economic Policy, 3(1), pp.11-26.
- Jäger, P., and T. Schmidt, 2016, “The Political Economy of Public Investment When Population Is Aging: A Panel Cointegration Analysis”, European Journal of Political Economy, 43, pp.145-158.
- Keman, H., 2010, “Cutting Back Public Investment after 1980: Collateral Damage, Policy Legacies and Political Adjustment”, Journal of Public Policy, 30(2), pp.163-182.
- Mehrotra, A., and T. Välilä, 2006, “Public Investment in Europe: Evolution and Determinants in Perspective”, Fiscal Studies, 27(4), pp.443-471.
- Presbitero, A. F., 2016, “Too Much and Too Fast? Public Investment Scaling-up and Absorptive Capacity”, Journal of Development Economics, 120, pp.17-31.
- Turrini, A., 2004, “Public Investment and the EU Fiscal Framework”, European Economy – Economic Paper No. 202.
- Van Dalen, H. P., and O. H. Swank, O. H., 1996, “Government Spending Cycles: Ideological or Opportunistic?”, Public Choice, pp.183-200.

### Institution, governance, procurement, and project performance
- Bulman, D., W. Kolkma, and A. Kraay, 2015, “Good Countries or Good Projects? Comparing Macro and Micro Correlates of World Bank and Asian Development Bank Project Performance”, World Bank Policy Research Working Paper No. 7245.
- Dollar, D., and V. Levin, 2005, “Sowing and Reaping: Institutional Quality and Project Outcomes in Developing Countries”, World Bank Policy Research Working Paper No. 3524.
- Dabla-Norris, E., J. Brumby, A. Kyobe, Z. Mills, and C. Papageorgiou, 2011, “Investing in Public Investment: An Index of Public Investment Efficiency”, IMF Working Paper No. 11/37.
- Denizer, C., D. Kaufmann, and A. Kraay, 2013, “Good Countries or Good Projects? Macro and Micro Correlates of World Bank Project Performance”, Journal of Development Economics, 105, pp.288-302.
- Kappeler, A., and T. Välilä, 2008, “Fiscal Federalism and The Composition of Public Investment in Europe”, European Journal of Political Economy, 24, pp.562-570.
- Karantounias, V., and D. Pinelli, 2016, “Local State-Owned Enterprises in Italy: Inefficiencies and Ways Forward”, The European Commission Economic Brief No. 010, April 2016.
- Lanau S., and P. Topalova, 2016, “The Impact of Product Market Reforms on Firm Productivity in Italy”, IMF Working Paper No. 16/119.
- Peta, D. A., 2017, “Gli appalti di lavori nel nuovo codice: un’ analisi gius-economica delle principali misure” (Public Procurement in the New Code), Banca d’Italia Occasional Paper no. 400.
- World Bank, 1998, “The Case-by-Case Approach to Privatization: Techniques and Examples”, Washington DC.
- OECD, 2009a, “Privatisation in the 21st Century: Recent Experiences of OECD Countries: Report on Good Practices”.

### Italy-specific government, oversight, and policy reports
- ANAC, 2016a, “Comunicato del Presidente del 13 luglio 2016 - La domanda degli appalti di lavori, servizi e forniture nel primo semestre 2016, Autorità Nazionale Anticorruzione”, Rome.
- ANAC, 2016b, “Nota di Aggiornamento al Piano di Riordino dell’Autorità Nazionale Anticorruzione, Autorità Nazionale Anticorruzione”, Rome.
- ANAC, 2018, “Aggiornamento 2018 al Piano Nazionale Anticorruzione, Autotitá Nazionale Anticorruzione”, Rome.
- Decarolis F., G. Palumbo, 2011, “La rinegoziazione dei contratti di lavori pubblici: un’analisi teorica e empirica”, In: Banca d’Italia, Le infrastrutture in Italia: dotazione, programmazione, realizzazione. Roma, 489-519.
- Bank of Italy, 2019, “2018 Annual Report”, Rome, Bank of Italy.
- Ministry of Economy and Finance, 2019a, “Rapporto sugli esiti della revision straordinaria delle partecipazioni pubbliche” (Report on the Result of the Extraordinary Review of Public Sector Holding), Treasury Department, Ministry of Economy and Finance of Italy.
- Ministry of Economy and Finance, 2019b, “Economic and Financial Document (DEF) 2019”.
- Parliamentary Budget Office, 2019, “Il Codice degli appalti pubblici: la difficile ricerca di un punto di equilibrio” (The Public Procurement Code: Striving for the Right Balance), Flash Report 2, June 11, 2019.
- Peta, D. A., 2017, “Gli appalti di lavori nel nuovo codice: un’ analisi gius-economica delle principali misure” (Public Procurement in the New Code), Banca d’Italia Occasional Paper no. 400.

### European Commission, OECD, IMF, G20 and other multilateral sources
- European Commission, 2014, “An Investment Plan for Europe”, Brussels, 26.11.2014, COM (2014) 903 Final.
- European Commission, 2016, “Italy – Review of Progress on Policy Measures Relevant for the Correction of Macroeconomic Imbalances”, Brussels, December 2016.
- European Commission, 2017a, “Italy – Review of Progress on Policy Measures Relevant for the Correction of Macroeconomic Imbalances”, Brussels, December 2017.
- European Commission, 2017b, “Government Investment in the EU: The Role of Institutional Factors”, Report on Public Finances in EMU 2017, pp.133-186.
- European Commission, 2018a, “Country Report Italy 2018 Including an In-Depth Review on the prevention and correction of macroeconomic imbalances”.
- European Commission, 2018b, “Public Administration Characteristics and Performance in EU28: Italy” in “The Public Administration in the EU 28”.
- European Commission, 2019, “Country Report Italy 2019 Including an In-Depth Review on the prevention and correction of macroeconomic imbalances”.
- European Commission, “Single Market Scoreboard for Public Procurement”, https://ec.europa.eu/internal_market/scoreboard/performance_per_policy_area/public_procurement/index_en.htm.
- G20, 2014, “Communique – Meeting of G20 Finance Ministers and Central Bank Governors, Cairns, September 21, 2014”, http://www.g20.utoronto.ca/2014/2014-0921-finance.html.
- International Monetary Fund, 2014. “Is It Time for An Infrastructure Push? The Macroeconomic Effects of Public Investment”, World Economic Outlook Chapter 3, October 2014.
- International Monetary Fund, 2015, “Making Public Investment More Efficient”, IMF Policy Paper.
- International Monetary Fund, 2016, “Effective Government for Stronger Growth”, Regional Economic Issues, European Department, November 2016.
- OECD, 2009b, “Italy: Better Regulation to Strengthen Market Dynamics”, OECD Review of Regulatory Reform, Paris.
- OECD, 2018a, “Ownership and Governance of State-Owned Enterprises: A Compendium of National Practices”.
- OECD, 2018b, “Privatisation and the Broadening of Ownership of State-Owned Enterprises”.
- OECD, 2019, “OECD Economic Surveys: Italy”, April 2019.

*Source: wpiea2020040-print-pdf - REFERENCES — https://www.imf.org/-/media/files/publications/wp/2020/english/wpiea2020040-print-pdf.pdf*

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_Source: https://www.imf.org/-/media/files/publications/wp/2020/english/wpiea2020040-print-pdf.pdf_