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Salary Caps in the Public Administration

Author

Listed:
  • Checchi, Daniele

    (University of Milan)

  • Figari, Francesco

    (Università degli Studi del Piemonte Orientale)

  • Fiorio, Carlo

    (Università degli Studi di Milano and Irvapp-FBK.)

Abstract

We study the effects of salary caps for top public managers in Italy, focusing on the 2011 and 2014 reforms implemented during the post-crisis fiscal consolidation period. The first cap, set at e290,000 and later reduced to e240,000, imposed a 100% marginal tax rate above the threshold. Using linked employer-employee administrative data and an event-study difference-in-differences design, we estimate the causal impact on earnings and participation. The 2011 reform significantly compressed salaries at the top of the public-sector distribution and generated sizable fiscal savings. Intensive-margin responses are modest: the top-bracket elasticity of taxable net earnings is about 0.214, and the resulting efficiency loss for stayers is small, reflecting second-order Harberger-triangle distortions. In contrast, extensive responses are large: the reform significantly increased early retirement and switching to the private sector, with participation elasticities far exceeding the intensive elasticity. Welfare analysis shows that overall efficiency costs are driven primarily by these extensive margins.

Suggested Citation

  • Checchi, Daniele & Figari, Francesco & Fiorio, Carlo, 2026. "Salary Caps in the Public Administration," IZA Discussion Papers 18450, IZA Network @ LISER.
    • Handle: RePEc:iza:izadps:dp18450
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    References listed on IDEAS

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    Keywords

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    JEL classification:

    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • J38 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Public Policy

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