Fiscal Reforms During Fiscal Consolidation: The Case of Italy

ECONPUBBLICA Working Paper No. 160

28 Pages Posted: 1 Mar 2012  

Giampaolo Arachi

Econpubblica - Università Bocconi; Università di Lecce - Dpto. di Scienze Economiche e Matematico-Statistiche

Valeria Bucci

University of Salento - The Group of Lecce

Ernesto Longobardi

University of Bari

Paolo M. Panteghini

University of Brescia; CESifo (Center for Economic Studies and Ifo Institute for Economic Research)

Maria Laura Parisi

University of Brescia, Department of Economics and Management

Simone Pellegrino

University of Turin - Department of Economics and Statistics

Alberto Zanardi

Bocconi University - Department of Economics

Multiple version iconThere are 2 versions of this paper

Date Written: February 29, 2012

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.

Keywords: Tax reforms, Fiscal consolidation, Micro simulation models, Italy

JEL Classification: H2, D22, D31

Suggested Citation

Arachi, Giampaolo and Bucci, Valeria and Longobardi, Ernesto and Panteghini, Paolo M. and Parisi, Maria Laura and Pellegrino, Simone and Zanardi, Alberto, Fiscal Reforms During Fiscal Consolidation: The Case of Italy (February 29, 2012). ECONPUBBLICA Working Paper No. 160. Available at SSRN: https://ssrn.com/abstract=2013240 or http://dx.doi.org/10.2139/ssrn.2013240

Giampaolo Arachi (Contact Author)

Econpubblica - Università Bocconi ( email )

Via Gobbi 5
Milan, 20136
Italy
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Università di Lecce - Dpto. di Scienze Economiche e Matematico-Statistiche ( email )

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Lecce 73100
Italy
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++0270036419 (Fax)

HOME PAGE: economia.unile.it

Valeria Bucci

University of Salento - The Group of Lecce ( email )

Lecce, 73100
Italy

Ernesto Longobardi

University of Bari ( email )

Piazza Umberto I
Bari, 70121
Italy
+390805049103 (Phone)

Paolo M. Panteghini

University of Brescia ( email )

Piazza del Mercato, 15
25122 Brescia
Italy

CESifo (Center for Economic Studies and Ifo Institute for Economic Research)

Poschinger Str. 5
Munich, DE-81679
Germany

HOME PAGE: http://www.cesifo.de

Maria Laura Parisi

University of Brescia, Department of Economics and Management ( email )

via San Faustino 74/b
Brescia, 25122
Italy
+39 0302988826 (Phone)
+39 0302988837 (Fax)

Simone Pellegrino

University of Turin - Department of Economics and Statistics ( email )

C. so Unione Sovietica, 218 Bis
Torino, 10134
Italy
0116706060 (Phone)
0116706062 (Fax)

Alberto Zanardi

Bocconi University - Department of Economics ( email )

Via Gobbi 5
Milan, 20136
Italy
+39 02 58365337 (Phone)
+39 02 58365318 (Fax)

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