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Tax and benefit reforms to support employment and inclusiveness and address poverty in Italy

Author

Listed:
  • Tim Bulman
  • Daniele Pacifico
  • Mauro Pisu
  • Olga Rastrigina

Abstract

This paper assesses Italy’s 2019 tax and benefit reforms, analyses hypothetical reforms and proposes a reform package that balances goals of reducing poverty, encouraging employment and fiscal sustainability. Using the OECD’s Tax-Benefit and the EUROMOD microsimulation models, it shows that the new guaranteed minimum income scheme introduced in 2019 significantly strengthens Italy’s low income protection system but can also financially discourage recipients from working. The debated flattening of personal income tax rates would do little to improve work incentives, but would drastically cut tax revenues and increase inequality, by reducing the progressivity of the personal tax system. A proposed reform package that maintains progressive personal income tax rates, gradually withdraws low-income support and provides additional benefits for low-wage earners would make inroads into poverty and inequality while encouraging formal work. This paper accompanies and extends the results of the in-depth chapter of the OECD 2019 Economic Survey of Italy (2019[1]) on social and regional disparities.

Suggested Citation

  • Tim Bulman & Daniele Pacifico & Mauro Pisu & Olga Rastrigina, 2019. "Tax and benefit reforms to support employment and inclusiveness and address poverty in Italy," OECD Economics Department Working Papers 1580, OECD Publishing.
    • Handle: RePEc:oec:ecoaaa:1580-en
    DOI: 10.1787/2a2a5978-en
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    Cited by:

    1. Herwig Immervoll & Rodrigo Fernandez & Raphaela Hyee & Jongmi Lee & Daniele Pacifico, 2022. "De-facto gaps in social protection for standard and non-standard workers: An approach for monitoring the accessibility and levels of income support," OECD Social, Employment and Migration Working Papers 271, OECD Publishing.

    More about this item

    Keywords

    active labour market policies; guaranteed minimum income; in-work benefits; inequality; labour force participation; labour supply; poverty; tax wedge; tax-benefit policies; work incentives;
    All these keywords.

    JEL classification:

    • H22 - Public Economics - - Taxation, Subsidies, and Revenue - - - Incidence
    • H31 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Household
    • H53 - Public Economics - - National Government Expenditures and Related Policies - - - Government Expenditures and Welfare Programs
    • H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions
    • J32 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Nonwage Labor Costs and Benefits; Retirement Plans; Private Pensions
    • J38 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Public Policy
    • I38 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - Government Programs; Provision and Effects of Welfare Programs
    • D3 - Microeconomics - - Distribution

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