The contribution of tax-benefit instruments to income redistribution in Italy

Abstract

Over the last two decades, interest in understanding what determines the redistributive role of tax-benefit systems has burgeoned worldwide. In the case of Italy, previous analyses tended to focus on quantifying the contribution of marginal tax rates, deductions and tax credits to the redistributive capacity of the personal income tax (PIT), while neglecting the effect of proportional taxes, social insurance contributions (SICs) and tax-free cash benefits on income redistribution. This paper aims to address this gap by applying Gini-based decomposition methodologies (Onrubia et al., 2014; Urban, 2014) to the vertical and horizontal effects of the Italian tax-benefit system for the 2018 year at the national level and the macroregional level. The findings show that tax-benefit instruments different from progressive taxation can contribute up to more than 50% of the redistributive effect with marked spatial differences regarding social transfers and SICs.