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What Explains the Redistribution Achieved by the Italian Personal Income Tax? Evidence from Administrative Data

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  • Gian Paolo Barbetta
  • Simone Pellegrino
  • Gilberto Turati

Abstract

We analyze the Italian personal income tax (PIT) in the light of the different tools available to the government to achieve income redistribution. We focus in particular on three mechanisms: marginal tax rates, deductions, and tax credits. Exploiting an extended version of the standard Pfähler decomposition, we estimate the contribution of each of these three tools to the overall redistributive effect of the PIT using administrative data on more than 1.3 million individual tax returns. Our estimates suggest that more than half of the total PIT redistributive effect is due to the two most important tax credits (the tax credit for employment and the tax credit for retirement income), while the marginal rates schedule contribution is about 40 percent. On the contrary, most of the itemized expenditures do not show any sizable impact on redistribution.

Suggested Citation

  • Gian Paolo Barbetta & Simone Pellegrino & Gilberto Turati, 2018. "What Explains the Redistribution Achieved by the Italian Personal Income Tax? Evidence from Administrative Data," Public Finance Review, , vol. 46(1), pages 7-28, January.
    • Handle: RePEc:sae:pubfin:v:46:y:2018:i:1:p:7-28
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    Citations

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    Cited by:

    1. Stefano Boscolo, 2021. "On the horizontal inequity effect of the erosion of the pit base: the case of Italy," Politica economica, Società editrice il Mulino, issue 1, pages 43-82.
    2. Cinzia Di Novi & Anna Marenzi & Dino Rizzi, 2018. "Do healthcare tax credits help poor-health individuals on low incomes?," The European Journal of Health Economics, Springer;Deutsche Gesellschaft für Gesundheitsökonomie (DGGÖ), vol. 19(2), pages 293-307, March.
    3. Martino Tasso, 2020. "Do details matter? An analysis of Italian personal income tax," Temi di discussione (Economic working papers) 1301, Bank of Italy, Economic Research and International Relations Area.
    4. Paolo Caro, 2020. "Decomposing Personal Income Tax Redistribution with Application to Italy," The Journal of Economic Inequality, Springer;Society for the Study of Economic Inequality, vol. 18(1), pages 113-129, March.
    5. Simone Pellegrino & Achille Vernizzi, 2018. "Decomposing the Redistributive Effect of Taxation to Reveal Axiom Violations," Working papers 049, Department of Economics, Social Studies, Applied Mathematics and Statistics (Dipartimento di Scienze Economico-Sociali e Matematico-Statistiche), University of Torino.
    6. Marenzi, Anna & Rizzi, Dino & Zanette, Michele, 2021. "Incentives for voluntary health insurance in a national health system: Evidence from Italy," Health Policy, Elsevier, vol. 125(6), pages 685-692.
    7. Joseph Teyu Chou & Chien-Hao Fu, 2022. "Which Families Benefited from the Recent Personal Income Tax Reform in Taiwan: Evidence from the Administrative Data," Journal of Family and Economic Issues, Springer, vol. 43(3), pages 433-451, September.
    8. Boscolo, Stefano, 2019. "The contribution of proportional taxes and tax-free cash benefits to income redistribution over the period 2005-2018: Evidence from Italy," EUROMOD Working Papers EM18/19, EUROMOD at the Institute for Social and Economic Research.
    9. Paolo Di Caro, 2018. "Redistribution in real-world PIT: Evidence from Italian tax records," Working Papers wp2018-2, Ministry of Economy and Finance, Department of Finance.
    10. Stefano Boscolo, 2020. "On the Horizontal Inequity Effect of the Erosion of the PIT Base: The Case of Italy," Department of Economics 0176, University of Modena and Reggio E., Faculty of Economics "Marco Biagi".
    11. Paolo Di Caro, 2017. "Analisi distributiva dell?IRPEF utilizzando i microdati di fonte fiscale," ECONOMIA PUBBLICA, FrancoAngeli Editore, vol. 2017(1), pages 35-59.
    12. Paolo Di Caro, 2017. "The contribution of tax statistics for analysing regional income disparities in Italy," Journal of Income Distribution, Ad libros publications inc., vol. 25(1), pages 1-27, March.
    13. Stefano Boscolo, 2022. "The contribution of tax-benefit instruments to income redistribution in Italy," ECONOMIA PUBBLICA, FrancoAngeli Editore, vol. 2022(2), pages 181-231.
    14. Vanesa Jorda & Jose M. Alonso, 2020. "What works to mitigate and reduce relative (and absolute) inequality?: A systematic review," WIDER Working Paper Series wp-2020-152, World Institute for Development Economic Research (UNU-WIDER).
    15. Stefano Boscolo, 2019. "Quantifying the Redistributive Effect of the Erosion of the Italian Personal Income Tax Base: A Microsimulation Exercise," ECONOMIA PUBBLICA, FrancoAngeli Editore, vol. 2019(2), pages 39-80.
    16. Stefano Boscolo, 2019. "The Contribution of Proportional Taxes and Tax-Free Cash Benefits to Income Redistribution over the Period 2005-2018: Evidence from Italy," Department of Economics 0152, University of Modena and Reggio E., Faculty of Economics "Marco Biagi".

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