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Decomposing Personal Income Tax Redistribution with Application to Italy

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  • Paolo Caro

    (Department of Finance; Ministry of Economy and Finance)

Abstract

The rise of wealth inequalities between and within nations is sustaining the request of reforming personal income taxes in many countries. A complete evaluation of the redistributive effects of tax instruments, however, implies investigating both vertical and horizontal equity aspects. I propose an augmented decomposition of the Reynolds-Smolensky index, where the reranking term is decomposed using geometric partition techniques, in order to measure how personal income tax instruments influence vertical and horizontal equity, as well. The application of the new method to novel Italian tax files suggests that the assessment of specific tax measures and/or tax reforms depends on which criterion of equity, vertical or horizontal, is adopted. The joint consideration of vertical and horizontal equity effects is also important when evaluating selected personal income tax instruments benefiting top income individuals and the tax measures adopted during the crisis. A specific focus on the regional redistributive effects of personal income tax is an additional key feature of this paper.

Suggested Citation

  • 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.
  • Handle: RePEc:spr:joecin:v:18:y:2020:i:1:d:10.1007_s10888-019-09425-7
    DOI: 10.1007/s10888-019-09425-7
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    Cited by:

    1. 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".
    2. 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.
    3. Stefano Boscolo, 2020. "On the Horizontal Inequity Effect of the Erosion of the PIT Base: The Case of Italy," Department of Economics (DEMB) 0176, University of Modena and Reggio Emilia, Department of Economics "Marco Biagi".

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    More about this item

    Keywords

    Vertical redistribution; Horizontal equity; Tax statistics; Decomposition methods;
    All these keywords.

    JEL classification:

    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • H24 - Public Economics - - Taxation, Subsidies, and Revenue - - - Personal Income and Other Nonbusiness Taxes and Subsidies

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