Designing a universal income support mechanism for Italy.An exploratory tour

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 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 an unconditional transfer combined with a wage subsidy (a total benefit amounting to about 70% of the poverty level) or – depending on the social welfare criterion – a more generous pure unconditional transfer amounting to100% of the poverty level. In this exercise the reforms can be financed by proportionally increasing the current marginal tax rates and widening the tax base to include all personal incomes, with top marginal rates close to ones currently applied in the Scandinavian countries. The set of universalistic policies that are preferable to the current system is anyway very large and appears to give the opportunity of selecting a best reform according to many different criteria or constraints.