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Five issues in the design of income support mechanisms. The case of Italy

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  • Ugo Colombino

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Abstract

Differently from most European countries and despite the recommendations on the part of the European Commission, Italy still misses a sufficiently systematic and nationwide mechanism of income support. In this paper we want to explore the feasibility, the desirability and the features of a universal policy of minimum income in Italy. We use a microeconometric model and a social welfare methodology in order to evaluate various alternatives mechanisms. We simulate the effects and the social welfare performance of 30 reforms resulting from six versions of five basic types of income support mechanism: guaranteed minimum income (GMI), universal basic income (UBI), wage subsidy (WS) and two mixed systems: GMI+WS and UBI+WS. As welfare evaluation criteria we adopt the Gini Social Welfare function and the Poverty-Adjusted Gini Social Welfare function. All the reforms are calibrated so as to preserve fiscal neutrality. The simulation adopts a methodology that allows for market equilibrium and ensures a consistent comparative statics interpretation of the results. Universal and non mean-tested transfers (possibly complemented by wage subsidy) emerge as desirable and feasible features of the income support mechanism. In the most realistic scenarios, the social-welfare-optimal policies are a modest unconditional transfer amounting to 40% of the poverty line complemented by a 10% wage subsidy or – depending on the social welfare criterion – a more generous unconditional transfer (100% of the poverty line). The reforms can be financed by proportionally increasing the current marginal tax rates and widening the tax base to include all personal incomes. The set of universalistic policies that are preferable to the current system is very large and gives the opportunity of selecting a best reform according to many different criteria.

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Bibliographic Info

Paper provided by CHILD - Centre for Household, Income, Labour and Demographic economics - ITALY in its series CHILD Working Papers with number wp21_11.

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Length: 45 pages
Date of creation: Dec 2011
Date of revision:
Handle: RePEc:wpc:wplist:wp21_11

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Keywords: Income Support Mechanisms; Basic Income; Guaranteed Minimum Income; Wage Subsidies; Tax Reform Simulation.;

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References

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  1. Gruber, Jon & Saez, Emmanuel, 2002. "The elasticity of taxable income: evidence and implications," Journal of Public Economics, Elsevier, vol. 84(1), pages 1-32, April.
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  4. Rolf Aaberge & Ugo Colombino & Steinar Strøm, 2004. "Do more equal slices shrink the cake? An empirical investigation of tax-transfer reform proposals in Italy," Journal of Population Economics, Springer, vol. 17(4), pages 767-785, December.
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  7. Peter A. Diamond & Emmanuel Saez, 2011. "The Case for a Progressive Tax: From Basic Research to Policy Recommendations," CESifo Working Paper Series 3548, CESifo Group Munich.
  8. John K. Dagsvik & Steinar Strøm, 2004. "Sectoral Labor Supply, Choice Restrictions and Functional Form," Discussion Papers 388, Research Department of Statistics Norway.
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  11. Ugo Colombino & Marilena Locatelli & Edlira Narazani & Cathal O’Donoghue, 2010. "Alternative Basic Income Mechanisms: An Evaluation Exercise with a Microeconometric Model," CHILD Working Papers wp04_10, CHILD - Centre for Household, Income, Labour and Demographic economics - ITALY.
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  13. Rolf Aaberge & Ugo Colombino, 2011. "Empirical Optimal Income Taxation: A Microeconometric Application to Norway," CHILD Working Papers wp16_11, CHILD - Centre for Household, Income, Labour and Demographic economics - ITALY.
  14. Rolf Aaberge & Ugo Colombino & Tom Wennemo, 2006. "Evaluating Alternative Representations of the Choice Sets in Models of Labour Supply," Discussion Papers 449, Research Department of Statistics Norway.
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Cited by:
  1. Ugo Colombino, 2010. "Equilibrium policy simulations with random utility models of labour supply," Carlo Alberto Notebooks 156, Collegio Carlo Alberto.

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