Italy’s key problem: Corporate investment is rationed

The low productivity in Italy is explained by the low level of corporate investment. It is important to understand that it is rationed: business loans have been declining sharply in Italy, and companies therefore have to self-finance their investments. But as Italian corporate profitability is low, investment must also be low, which prevents an upturn in potential growth. The situation of Italian banks is improving, but an upswing in lending to companies may take time; the only solution to rapidly restore Italian corporate investment would therefore be a massive corporate tax cut that would restore corporate profitability . But this choice cannot be made at present, as households then would have to be taxed more, for example by increasing the VAT.