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Italy's economic and employment problems were to a large extent home made, whereas external economic and political pressures did facilitate internal revitalization. While export‐oriented industries in northern Italy had maintained international competitiveness, overall employment rates were very low, and inflation was very high until the early 1990s. Since the clientelistic Italian state was not able to put the brakes on the spiral of wage and price increases that were automatically linked to all sorts of public and welfare‐state expenditures, public‐sector deficits were rising inexorably. After the collapse of the old party system, however, the unions were able and willing to enter into a series of accords with successive reform governments that not only facilitated price stability through wage restraint but that also legitimated significant welfare cutbacks that contributed to budget consolidation. The impetus for reform was a serious political commitment to meet the stringent Maastricht criteria in order to ensure Italy's membership in the European Monetary Union.

This is the third of five country case studies on income inequality, and investigates the impact of financial liberalization and the rise of financial rents on income inequality in Turkey. The chapter has five sections: Introduction; Indicators of Income Distribution: The Evidence—a broad overview, and evidence on the patterns of income distribution in Turkey over the last three decades; Macroeconomic Adjustment under Financial Liberalization and the Rise of Financial Rents—a discussion of the evolution of functional categories of income that includes an account of the macroeconomic adjustment; The Rising Fiscal Gap and the Role of the State in Regulating the Distributional Structure—a detailed analysis of the rise in public sector deficits and the distributive consequences of the widening fiscal gap; and Concluding Comments and Overall Assessment. Sect. 3 looks at the inherent tensions caused by the macroeconomic disequilibria embodied in the process of integration with world markets under conditions of a poorly supervised banking system and underdeveloped and fragile domestic asset markets; here, it is found to be analytically convenient to decompose the path of Turkish liberalization after 1980 into two major subperiods partitioned by the strategic step of capital account deregulation—which took place in 1989 and was completed by the full integration of the domestic market into global financial markets. This section also studies the patterns of the wage cycle and productivity growth using quantitative filtering techniques, and reports on the disassociation of labour remunerations from the productivity gains in the real sphere of the economy.

This chapter provides a structural overview of the Italian financial system. It notes that the Italian system, like that of other industrialized nations, has experienced very profound changes motivated by factors external to the financial system, such as economic adjustment policies in response to the second oil crisis or the high public-sector deficit. The chapter adds that other changes, such as advancements in communications, information technology, and technological innovation, correspond to common developments in the worldwide financial system. It points out that the regulation of the Italian financial system rejected the possibility of universal banking and instead opted for specialization according to criteria based on credit and deposit-maturity terms. However, the chapter notes that in recent years there has been considerable deregulation, which, together with the consolidation of activities within individual banks, has led to an erosion of the differences between the various types of institutions.