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Political support and tax reforms with an application to Italy

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  • Paola Profeta

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Abstract

In 2001 the Italian government introduced a personal income tax reform to be implemented in successive phases. In 2004 taxes were reduced to all income levels with higher gains for low-income and high-income individuals than for middle-income ones. A large debate arised. This paper explores the political economy reasons under this tax reform, mainly the attempt of the government to attract the uncertain voters (swing voters). A probabilistic voting model is introduced to capture the importance of swing voters. The model predicts that the average personal income tax rate tends to be lower for groups of lower income, higher preference for leisure and containing more politically mobile voters (swing voters). However, data from Italian polls show that, while the tax reform was a good strategy to attract swing voters, the specific design of the reform, which favored high-income and low-income individuals, but not the middle class, was not the more appropriate strategy. Copyright Springer Science+Business Media, LLC 2007

Suggested Citation

  • Paola Profeta, 2007. "Political support and tax reforms with an application to Italy," Public Choice, Springer, vol. 131(1), pages 141-155, April.
  • Handle: RePEc:kap:pubcho:v:131:y:2007:i:1:p:141-155
    DOI: 10.1007/s11127-006-9110-4
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    File URL: http://hdl.handle.net/10.1007/s11127-006-9110-4
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    Citations

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    Cited by:

    1. Castanheira, Micael & Nicodème, Gaëtan & Profeta, Paola, 2011. "On the political economics of tax reforms," CEPR Discussion Papers 8507, C.E.P.R. Discussion Papers.
    2. Fumagalli, Laura & Sala, Emanuela, 2011. "The total survey error paradigm and pre-election polls: the case of the 2006 Italian general elections," ISER Working Paper Series 2011-29, Institute for Social and Economic Research.
    3. Lars P. Feld & Christoph A. Schaltegger, 2012. "Die Politische Ökonomik der Besteuerung," Perspektiven der Wirtschaftspolitik, Verein für Socialpolitik, vol. 13(1-2), pages 116-136, February.
    4. Paola Profeta & Simona Scabrosetti & Stanley Winer, 2014. "Wealth transfer taxation: an empirical investigation," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 21(4), pages 720-767, August.
    5. Micael Castanheira & Gaëtan Nicodème & Paola Profeta, 2012. "On the political economics of tax reforms: survey and empirical assessment," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 19(4), pages 598-624, August.
    6. Víctor Mauricio Castañeda Rodríguez, 2015. "Un modelo de elección de medidas tributarias. El caso de América Latina," Revista de Economía Institucional, Universidad Externado de Colombia - Facultad de Economía, vol. 17(32), pages 157-181, January-J.
    7. Paola Profeta, 2008. "Political Support and Tax Reforms: An Italian Example," ifo DICE Report, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 6(1), pages 32-36, 04.
    8. European Commission, 2012. "Tax reforms in EU Member States - Tax policy challenges for economic growth and fiscal sustainability – 2012 Report," Taxation Papers 34, Directorate General Taxation and Customs Union, European Commission.
    9. Paola Profeta & Simona Scabrosetti, 2010. "The Political Economy of Taxation," Books, Edward Elgar Publishing, number 13258, April.
    10. Miroslav Beblavý, 2011. "Why has the crisis been bad for private pensions, but good for the flat tax? The sustainability of ‘neoliberal’ reforms in the new EU member states," CEPS Papers 6313, Centre for European Policy Studies.
    11. Dolmas, Jim, 2014. "Almost orthogonal outcomes under probabilistic voting: A cautionary example," MPRA Paper 53628, University Library of Munich, Germany.
    12. Eisenhauer, Joseph G., 2011. "The rich, the poor, and the middle class: Thresholds and intensity indices," Research in Economics, Elsevier, vol. 65(4), pages 294-304, December.
    13. Profeta, Paola & Puglisi, Riccardo & Scabrosetti, Simona, 2013. "Does democracy affect taxation and government spending? Evidence from developing countries," Journal of Comparative Economics, Elsevier, vol. 41(3), pages 684-718.

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