1887

OECD Economics Department Working Papers

Working papers from the Economics Department of the OECD that cover the full range of the Department’s work including the economic situation, policy analysis and projections; fiscal policy, public expenditure and taxation; and structural issues including ageing, growth and productivity, migration, environment, human capital, housing, trade and investment, labour markets, regulatory reform, competition, health, and other issues.

The views expressed in these papers are those of the author(s) and do not necessarily reflect those of the OECD or of the governments of its member countries.

English, French

Tax and benefit reforms to support employment and inclusiveness and address poverty in Italy

This paper assesses Italy’s 2019 tax and benefit reforms, analyses hypothetical reforms and proposes a reform package that balances goals of reducing poverty, encouraging employment and fiscal sustainability. Using the OECD’s Tax-Benefit and the EUROMOD microsimulation models, it shows that the new guaranteed minimum income scheme introduced in 2019 significantly strengthens Italy’s low income protection system but can also financially discourage recipients from working. The debated flattening of personal income tax rates would do little to improve work incentives, but would drastically cut tax revenues and increase inequality, by reducing the progressivity of the personal tax system. A proposed reform package that maintains progressive personal income tax rates, gradually withdraws low-income support and provides additional benefits for low-wage earners would make inroads into poverty and inequality while encouraging formal work. This paper accompanies and extends the results of the in-depth chapter of the OECD 2019 Economic Survey of Italy (2019[1]) on social and regional disparities.

English

Keywords: guaranteed minimum income, labour force participation, labour supply, tax-benefit policies, work incentives, poverty, inequality, tax wedge, active labour market policies, in-work benefits
JEL: H22: Public Economics / Taxation, Subsidies, and Revenue / Taxation and Subsidies: Incidence; J38: Labor and Demographic Economics / Wages, Compensation, and Labor Costs / Wages, Compensation, and Labor Costs: Public Policy; H55: Public Economics / National Government Expenditures and Related Policies / Social Security and Public Pensions; I38: Health, Education, and Welfare / Welfare, Well-Being, and Poverty / Welfare, Well-Being, and Poverty: Government Programs; Provision and Effects of Welfare Programs; H53: Public Economics / National Government Expenditures and Related Policies / National Government Expenditures and Welfare Programs; H31: Public Economics / Fiscal Policies and Behavior of Economic Agents / Fiscal Policies and Behavior of Economic Agents: Household; J32: Labor and Demographic Economics / Wages, Compensation, and Labor Costs / Nonwage Labor Costs and Benefits; Retirement Plans; Private Pensions; D3: Microeconomics / Distribution
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