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The distributional and welfare impact of inflation in Italy

Author

Listed:
  • Alessandra Cepparulo
  • Francesca Gastaldi
  • Paolo Liberati

Abstract

The entrance of Italy in the Euro area in 2001 has given rise to a wide debate about the perception of inflation on households’ well-being. However, most of the debate has involved the measurement of the “correct†consumer price index at national level. Much less analysis has been carried out on the microeconomic consequences of inflation on every household and to the investigation of its distributional impact. This paper addresses this issue by performing a microsimulation analysis of the impact of inflation on Italian households in the period 1997-2007. The extension of the study allows to capture possible structural breaks in correspondence of the adoption of the euro currency in 2001, and to get insightful information on the persistence of either positive or negative impacts. All methods of investigation proposed in this paper show that the impact of inflation has an ambiguous path over the period, yet a large concentration of welfare losses is found in the period surrounding the introduction of the euro currency. In particular, poorer and larger households are found to be severely hurt by inflation and a closer inspection suggests that the prices of gas and gasoline are largely responsible in determining living conditions of Italian households in both the period around the introduction of the euro and over the decade.

Suggested Citation

  • Alessandra Cepparulo & Francesca Gastaldi & Paolo Liberati, 2010. "The distributional and welfare impact of inflation in Italy," Working Papers 134, University of Rome La Sapienza, Department of Public Economics.
  • Handle: RePEc:sap:wpaper:wp134
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    References listed on IDEAS

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    1. Andrea Brandolini, 1999. "The Distribution of Personal Income in Post-War Italy: Source Description, Data Quality, and the Time Pattern of Income Inequality," Giornale degli Economisti, GDE (Giornale degli Economisti e Annali di Economia), Bocconi University, vol. 58(2), pages 183-239, September.
    2. S. J. Prais, 1959. "Whose Cost of Living?," Review of Economic Studies, Oxford University Press, vol. 26(2), pages 126-134.
    3. Ahmad,Etisham & Stern,Nicholas, 1991. "The Theory and Practice of Tax Reform in Developing Countries," Cambridge Books, Cambridge University Press, number 9780521265638, May.
    4. Deaton, Angus, 1977. "Equity, efficiency, and the structure of indirect taxation," Journal of Public Economics, Elsevier, vol. 8(3), pages 299-312, December.
    5. Morné Oosthuizen, 2007. "Consumer Price Inflation across the Income Distribution in South Africa," Working Papers 07129, University of Cape Town, Development Policy Research Unit.
    6. Javier Ruiz-Castillo & Eduardo Ley & Mario Izquierdo, "undated". "The plutocratic bias in the CPI: Evidence from Spain," Studies on the Spanish Economy 60, FEDEA.
    7. Bart Hobijn & David Lagakos, 2005. "Inflation Inequality In The United States," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 51(4), pages 581-606, December.
    8. Ian Crawford, 1994. "UK household cost-of-living indices, 1979-92," Fiscal Studies, Institute for Fiscal Studies, vol. 15(4), pages 1-28, January.
    9. Massimo Baldini, 2005. "Inflation inequality in Italy," Center for the Analysis of Public Policies (CAPP) 0008, Universita di Modena e Reggio Emilia, Dipartimento di Economia "Marco Biagi".
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    11. Paolo Liberati, 2001. "The Distributional Effects of Indirect Tax Changes in Italy," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 8(1), pages 27-51, January.
    12. Francesco CHELLI & Chiara GIGLIARANO & Elvio MATTIOLI, 2009. "The Impact of Inflation on Heterogeneous Groups of Households: an Application to Italy," Working Papers 329, Universita' Politecnica delle Marche (I), Dipartimento di Scienze Economiche e Sociali.
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    Cited by:

    1. Morne Oosthuizen, 2013. "Inflation Inequality In South Africa," Working Papers 13158, University of Cape Town, Development Policy Research Unit.

    More about this item

    Keywords

    Redistribution; Inflation; Households; Welfare.;

    JEL classification:

    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • D60 - Microeconomics - - Welfare Economics - - - General
    • H22 - Public Economics - - Taxation, Subsidies, and Revenue - - - Incidence
    • I31 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - General Welfare, Well-Being

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