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The Distributional Effects of Indirect Tax Changes in Italy

  • Paolo Liberati

This paper evaluatesthe distributional and welfare effects of two recent changesof Value Added Tax (VAT) and excise taxes in Italy applying andcomparing two related and complementary methods of analysis:the first based on the distributional characteristics of Feldstein(1972) and recently applied by Newbery (1995); the second basedon the theory of marginal dominance developed by Mayshar andYitzhaki (1996). The paper finds no evidence that the reformshave redistributed purchasing power among households. But themost striking result is that a simpler two-rate VAT structure,set according to the European directives on VAT coordination,could have replaced the present system producing the same revenueand increasing welfare. This last result provides a clear instancein which reducing the number of VAT rates can be welcome evenin the presence of distributional concerns. Copyright Kluwer Academic Publishers 2001

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File URL: http://hdl.handle.net/10.1023/A:1008789432330
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Article provided by Springer in its journal International Tax and Public Finance.

Volume (Year): 8 (2001)
Issue (Month): 1 (January)
Pages: 27-51

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Handle: RePEc:kap:itaxpf:v:8:y:2001:i:1:p:27-51
Contact details of provider: Web page: http://www.springerlink.com/link.asp?id=102915

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  1. Yitzhaki, Shlomo & Thirsk, Wayne, 1990. "Welfare dominance and the design of excise taxation in the Cote d'ivoire," Journal of Development Economics, Elsevier, vol. 33(1), pages 1-18, July.
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  13. Feldstein, Martin, 1976. "On the theory of tax reform," Journal of Public Economics, Elsevier, vol. 6(1-2), pages 77-104.
  14. 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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  24. Yitzhaki, Shlomo & Lewis, Jeffrey D, 1996. "Guidelines on Searching for a Dalton-Improving Tax Reform: An Illustration with Data from Indonesia," World Bank Economic Review, World Bank Group, vol. 10(3), pages 541-62, September.
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  29. Yitzhaki, Shlomo & Slemrod, Joel, 1991. "Welfare Dominance: An Application to Commodity Taxation," American Economic Review, American Economic Association, vol. 81(3), pages 480-96, June.
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