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Five Issues in the Design of Income Support Mechanisms: The Case of Italy

  • Colombino, Ugo


    (University of Turin)

Differently from most European countries and despite the recommendations on the part of the European Commission, Italy still misses a sufficiently systematic and nationwide mechanism of income support. In this paper we want to explore the feasibility, the desirability and the features of a universal policy of minimum income in Italy. We use a microeconometric model and a social welfare methodology in order to evaluate various alternatives mechanisms. We simulate the effects and the social welfare performance of 30 reforms resulting from six versions of five basic types of income support mechanism: guaranteed minimum income (GMI), universal basic income (UBI), wage subsidy (WS) and two mixed systems: GMI+WS and UBI+WS. As welfare evaluation criteria we adopt the Gini Social Welfare function and the Poverty-Adjusted Gini Social Welfare function. All the reforms are calibrated so as to preserve fiscal neutrality. The simulation adopts a methodology that allows for market equilibrium and ensures a consistent comparative statics interpretation of the results. Universal and non mean-tested transfers (possibly complemented by wage subsidy) emerge as desirable and feasible features of the income support mechanism. In the most realistic scenarios, the social-welfare-optimal policies are a modest unconditional transfer amounting to 40% of the poverty line complemented by a 10% wage subsidy or – depending on the social welfare criterion – a more generous unconditional transfer (100% of the poverty line). The reforms can be financed by proportionally increasing the current marginal tax rates and widening the tax base to include all personal incomes. The set of universalistic policies that are preferable to the current system is very large and gives the opportunity of selecting a best reform according to many different criteria.

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Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 6059.

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Length: 47 pages
Date of creation: Oct 2011
Date of revision:
Handle: RePEc:iza:izadps:dp6059
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  1. Dagsvik, John K, 1994. "Discrete and Continuous Choice, Max-Stable Processes, and Independence from Irrelevant Attributes," Econometrica, Econometric Society, vol. 62(5), pages 1179-1205, September.
  2. Sen, Amartya, 1974. "Informational bases of alternative welfare approaches : Aggregation and income distribution," Journal of Public Economics, Elsevier, vol. 3(4), pages 387-403, November.
  3. Ugo Colombino & Marilena Locatelli & Edlira Narazani & Cathal O’Donoghue, 2010. "Alternative Basic Income Mechanisms: An Evaluation Exercise with a Microeconometric Model," CHILD Working Papers wp04_10, CHILD - Centre for Household, Income, Labour and Demographic economics - ITALY.
  4. John K. Dagsvik, 1996. "Aggregation in Matching Markets," Discussion Papers 173, Statistics Norway, Research Department.
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  7. Colombino, Ugo, 2012. "Equilibrium policy simulation with random utility models of labor supply," EUROMOD Working Papers EM5/12, EUROMOD at the Institute for Social and Economic Research.
  8. repec:oup:restud:v:43:y:1976:i:1:p:19-39 is not listed on IDEAS
  9. Rolf Aaberge & Ugo Colombino, 2006. "Designing Optimal Taxes with a Microeconometric Model of Household Labour Supply," Discussion Papers 475, Statistics Norway, Research Department.
  10. Ugo Colombino & Steinar Strøm & Rolf Aaberge, 2000. "Labor supply responses and welfare effects from replacing current tax rules by a flat tax: Empirical evidence from Italy, Norway and Sweden," Journal of Population Economics, Springer, vol. 13(4), pages 595-621.
  11. Aaberge, Rolf & Colombino, Ugo & Wennemo, Tom, 2006. "Evaluating Alternative Representations of the Choice Sets in Models of Labour Supply," IZA Discussion Papers 1986, Institute for the Study of Labor (IZA).
  12. Duncan, Alan & Giles, Christopher, 1996. "Labour Supply Incentives and Recent Family Credit Reforms," Economic Journal, Royal Economic Society, vol. 106(434), pages 142-55, January.
  13. Peter Haan & Katharina Wrohlich, 2007. "Optimal Taxation: The Design of Child Related Cash- and In-Kind-Benefits," SOEPpapers on Multidisciplinary Panel Data Research 65, DIW Berlin, The German Socio-Economic Panel (SOEP).
  14. De Vincenti Claudio & Paladini Ruggero, 2009. "Personal Income Tax Design for Italy: Lessons from the Theory," Rivista italiana degli economisti, Società editrice il Mulino, issue 1, pages 7-46.
  15. Peter A. Diamond & Emmanuel Saez, 2011. "The Case for a Progressive Tax: From Basic Research to Policy Recommendations," CESifo Working Paper Series 3548, CESifo Group Munich.
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  18. McFadden, Daniel, 1974. "The measurement of urban travel demand," Journal of Public Economics, Elsevier, vol. 3(4), pages 303-328, November.
  19. Atkinson, A B, 1987. "On the Measurement of Poverty," Econometrica, Econometric Society, vol. 55(4), pages 749-64, July.
  20. Aaberge, Rolf & Colombino, Ugo & Strøm, Steinar, 2003. "Do More Equal Slices Shrink the Cake? An Empirical Investigation of Tax-Transfer Reform Proposals in Italy," Memorandum 37/2003, Oslo University, Department of Economics.
  21. Immervoll, Herwig & Kleven, Henrik & Kreiner, Claus Thustrup & Saez, Emmanuel, 2004. "Welfare Reform in European Countries: A Micro-Simulation Analysis," CEPR Discussion Papers 4324, C.E.P.R. Discussion Papers.
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  23. John Creedy & Alan Duncan, 2005. "Aggregating Labour Supply and Feedback Effects in Microsimulation," Australian Journal of Labour Economics (AJLE), Bankwest Curtin Economics Centre (BCEC), Curtin Business School, vol. 8(3), pages 277-290, September.
  24. John Creedy & Guyonne Kalb & Rosanna Scutella, 2003. "Discrete Hours Labour Supply Modelling: Specification, Estimation and Simulation," Melbourne Institute Working Paper Series wp2003n21, Melbourne Institute of Applied Economic and Social Research, The University of Melbourne.
  25. Colombino, Ugo, 1998. "Evaluating the effects of new telephone tariffs on residential users' demand and welfare. A model for Italy," Information Economics and Policy, Elsevier, vol. 10(3), pages 283-303, September.
  26. François Bourguignon & Amedeo Spadaro, 2006. "Microsimulation as a Tool for Evaluating Redistribution Policies," Working Papers 20, ECINEQ, Society for the Study of Economic Inequality.
  27. Jon Gruber & Emmanuel Saez, 2000. "The Elasticity of Taxable Income: Evidence and Implications," NBER Working Papers 7512, National Bureau of Economic Research, Inc.
  28. Standing Guy, 2008. "How Cash Transfers Promote the Case for Basic Income," Basic Income Studies, De Gruyter, vol. 3(1), pages 1-30, July.
  29. Rolf Aaberge & Ugo Colombino, 2011. "Empirical Optimal Income Taxation: A Microeconometric Application to Norway," CHILD Working Papers wp16_11, CHILD - Centre for Household, Income, Labour and Demographic economics - ITALY.
  30. Tom Kornstad & Thor O. Thoresen, 2002. "A Discrete Choice Model for Labor Supply and Child Care," Discussion Papers 315, Statistics Norway, Research Department.
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  33. Meade, James E, 1972. "Poverty in the Welfare State," Oxford Economic Papers, Oxford University Press, vol. 24(3), pages 289-326, November.
  34. Aaberge, Rolf & Colombino, Ugo & Strom, Steinar, 1999. "Labour Supply in Italy: An Empirical Analysis of Joint Household Decisions, with Taxes and Quantity Constraints," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 14(4), pages 403-22, July-Aug..
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