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Fiscal Reforms during Fiscal Consolidation: The Case of Italy

Author

Listed:
  • Giampaolo Arachi

    () (Deparment of Economics and Mathematical Statistics, University of Salento)

  • Valeria Bucci

    () (Deparment of Economics and Mathematical Statistics, University of Salento)

  • Ernesto Longobardi

    () (Department of Economics and Quantitative Methods, University of Bari)

  • Paolo Panteghini

    () (Department of Economics, University of Brescia)

  • Maria Laura Parisi

    () (Department of Economics, University of Brescia)

  • Simone Pellegrino

    () (Department of Economics and Statistics (Dipartimento di Scienze Economico-Sociali e Matematico-Statistiche), University of Torino, Italy)

  • Alberto Zanardi

    () (Department of Economics, University of Bologna)

Abstract

In this paper we aim to discuss the strengths and weaknesses of the fiscal consolidation package adopted recently by the Italian Government in order to achieve a balanced budget by 2013. Revenues are forecasted to increase by more than 3.3 GDP percentage points; these stem mostly from indirect and property taxation. The analysis of the Italian case is interesting since it seems to be consistent with a recent strand of the literature which, in order to foster both short and long-term economic growth, advocated a shift of the tax burden from capital and labour income to consumption and property. Through a set of micro simulation models, this paper evaluates the effects of the Italian fiscal package on households and firms. We show that, in respect of households' income, indirect and property tax reforms are highly regressive, whilst the reform makes limited resources available for growth enhancing policies (reduction in the effective corporate tax burden). Then, we propose an alternative fiscal package. We show that a less regressive reform on households can be obtained by shifting taxation from personal and corporate income tax to indirect taxation. Our proposal allows the tax burden on firms to be reduced substantially and, in the meantime, offers lower personal income tax rates on households in the lowest deciles of income distribution since they are penalized most by the increase in indirect taxation.

Suggested Citation

  • Giampaolo Arachi & Valeria Bucci & Ernesto Longobardi & Paolo Panteghini & Maria Laura Parisi & Simone Pellegrino & Alberto Zanardi, 2012. "Fiscal Reforms during Fiscal Consolidation: The Case of Italy," Working papers 002, Department of Economics and Statistics (Dipartimento di Scienze Economico-Sociali e Matematico-Statistiche), University of Torino.
    • Handle: RePEc:tur:wpapnw:002
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    File URL: http://www.biblioecon.unito.it/biblioservizi/RePEc/tur/wpapnw/m2.pdf
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    References listed on IDEAS

    as
    1. Paolo M. Panteghini, 2001. "Dual income taxation : the choice of the imputed rate of return," Finnish Economic Papers, Finnish Economic Association, vol. 14(1), pages 5-13, Spring.
    2. Calmfors, Lars, 1993. "Lessons from the macroeconomic experience of Sweden," European Journal of Political Economy, Elsevier, vol. 9(1), pages 25-72, March.
    3. Doris Prammer, 2011. "Quality of taxation and the crisis: Tax shifts from a growth perspective," Taxation Papers 29, Directorate General Taxation and Customs Union, European Commission.
    4. Massimo Bordignon & Silvia Giannini & Paolo Panteghini, 2001. "Reforming Business Taxation: Lessons from Italy?," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 8(2), pages 191-210, March.
    5. Robert Z. Ailber (ed.), 2001. "International Finance," Books, Edward Elgar Publishing, volume 0, number 525, April.
    6. Buti,Marco & Deroose,Servaas & Gaspar,Vitor & Martins,João Nogueira (ed.), 2010. "The Euro," Cambridge Books, Cambridge University Press, number 9789279098420, April.
    7. Edyta Mazurek & Simone Pellegrino & Achille Vernizzi, 2010. "The Decomposition of the Redistributive Effect and the Issue of Close Equals Identification," Working papers 16, Former Department of Economics and Public Finance "G. Prato", University of Torino.
    8. Mervyn A. King & Don Fullerton, 1984. "The Taxation of Income from Capital: A Comparative Study of the United States, the United Kingdom, Sweden, and Germany," NBER Books, National Bureau of Economic Research, Inc, number king84-1, January.
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    Cited by:

    1. Francesca Gastaldi & Paolo Liberati & Elena Pisano & Simone Tedeschi, 2014. "Progressivity-Improving VAT Reforms in Italy," Working papers 6, Società Italiana di Economia Pubblica.
    2. Kayis-Kumar, Ann, 2015. "Thin capitalisation rules: A second-best solution to the cross-border debt bias?," MPRA Paper 72031, University Library of Munich, Germany.
    3. repec:ijm:journl:v10:y:2017:i:1:p:5-38 is not listed on IDEAS

    More about this item

    Keywords

    Tax reforms; Fiscal consolidation; Micro simulation models; Italy;

    JEL classification:

    • H2 - Public Economics - - Taxation, Subsidies, and Revenue
    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis
    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution

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