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Did VAT change redistribute purchasing power in Italy?

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  • Paolo Liberati

Abstract

This paper assesses the effects of the changes of the Value Added Tax (VAT) rates in Italy for the period 1988-1997, questioning their overall redistributive impact compared with an equal-revenue proportional tax rate. By using the theory of marginal tax reforms and the AWARETAX microsimulation model, it is shown that most real relative price changes due to the selective use of VAT rates have caused a welfare loss which is increasingly negative in the degree of inequality aversion. It means that many VAT changes implemented during the last decade have been welfare inferior to a distributionally neutral proportional change of all VAT rates providing the same revenue.

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Bibliographic Info

Paper provided by University of Rome La Sapienza, Department of Public Economics in its series Working Papers with number 40.

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Length: 33
Date of creation: Nov 2000
Date of revision:
Handle: RePEc:sap:wpaper:wp40

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Related research

Keywords: Marginal tax reforms; VAT; Redistribution; Social Welfare; Italy.;

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  1. Andrea Brandolini, 1999. "The Distribution of Personal Income in Post-War Italy: Source Description, Data Quality, and the Time Pattern of Income Inequality," Temi di discussione (Economic working papers) 350, Bank of Italy, Economic Research and International Relations Area.
  2. Paolo Liberati, 2001. "The Distributional Effects of Indirect Tax Changes in Italy," International Tax and Public Finance, Springer, vol. 8(1), pages 27-51, January.
  3. Murty, M N & Ray, Ranjan, 1989. " A Computational Procedure for Calculating Optimal Commodity Taxes with Illustrative Evidence from Indian Budget Data," Scandinavian Journal of Economics, Wiley Blackwell, vol. 91(4), pages 655-70.
  4. Madden, David, 1995. "Labour Supply, Commodity Demand and Marginal Tax Reform," Economic Journal, Royal Economic Society, vol. 105(429), pages 485-97, March.
  5. Blundell, Richard & Pashardes, Panos & Weber, Guglielmo, 1993. "What Do We Learn About Consumer Demand Patterns from Micro Data?," American Economic Review, American Economic Association, vol. 83(3), pages 570-97, June.
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