Did Vat Changes Redistribute Purchasing Power in Italy?

31 Pages Posted: 18 Oct 2000

See all articles by Paolo Liberati

Paolo Liberati

University of Rome I - Department of Public Economics; University of Urbino - Faculty of Economics

Abstract

This paper assesses the effects of the changes of the Value Added Tax (VAT) rates in Italy for the period 1988-1997, questioning their overall redistributive impact compared with an equal-revenue proportional tax rate. By using the theory of marginal tax reforms and the AWARETAX microsimulation model, it is shown that most real relative price changes due to the selective use of VAT rates have caused a welfare loss which is increasingly negative in the degree of inequality aversion. It means that many VAT changes implemented during the last decade have been welfare inferior to a distributionally neutral proportional change of all VAT rates providing the same revenue.

Keywords: Marginal tax reforms, VAT, Redistribution, Social Welfare, Italy

JEL Classification: D12, D63, H23

Suggested Citation

Liberati, Paolo, Did Vat Changes Redistribute Purchasing Power in Italy?. Available at SSRN: https://ssrn.com/abstract=246381 or http://dx.doi.org/10.2139/ssrn.246381

Paolo Liberati (Contact Author)

University of Rome I - Department of Public Economics ( email )

via del Castro Laurenziano, 9
Rome, RM 00161
Italy

University of Urbino - Faculty of Economics ( email )

Via Saffi, 47
61029 Urbino
Italy

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