Family Intertemporal Fiscal Incidence: A new Methodology for Assessing Public Policies

A correct assessment of public policies requires the analysis of deliberate and involuntary redistribution. Redistributive policies have an interpersonal as well as an intrapersonal dimension. To assess the latter, the entire lifetime of individuals and families has to be taken into consideration. Traditionally, redistribution is analysed with static tax-benefit microsimulation models or on stylised individuals/households. Such tools are inadequate to estimate intrapersonal redistribution. The paper proposes a new methodology for evaluating the lifetime incidence of budgetary policy on families. To do so, the definition of a “family unit” proposed by Ermish and Overton (1985) is used. By explicitly considering jointly all tax and spending programs, including in kind transfers and the supply of public services, the new methodology allows to estimate the overall redistribution of the public budget. Moreover, this approach provides an essential tool for examining in detail how the existing tax-benefit system influences the net fiscal position of different family kinds along their lifecycle. As a first application, the new methodology is applied to Italy to investigate lifetime public support to dependants. Empirical results show that public support is not negligible, representing on average 10 percent of family expenditures. However, support is mainly geared to “old” family types - characterised by an absence of major economic problems and by low female labour market participation. The second part of the research explores the hypothesis that the current low demographic scenario can be characterised by “demographic free-riding”. Conclusions are such that the free-riding hypothesis is accepted. However, the scenario resembles the “positive externality” case more than that of “pure public good”.