Income Inequality in Italy and Tax Policy Implications

Reconstructing Income Inequality in Italy: New Evidence and Tax Policy Implications from Distributional National Accounts

In this study, Demetrio Guzzardi, Elisa Palagi, Andrea Roventini and Alessandro Santoro reconstruct novel Distributional National Accounts for Italy combining national and regional survey data, administrative data and national accounts in order to analyze the evolution of income distribution and the overall progressivity of the tax system. The estimates show higher income concentration at the top compared to previous studies, with increasing trends after 2008. The results shed further light on the multifaceted nature of inequality in Italy: youngest individuals, women and Southern regions are particularly exposed to increasing inequality. The Italian tax system is slightly progressive up to the 95th income percentile and regressive for the top 5%. It is fully regressive when individuals are ranked on net wealth. Simulations show that a wealth tax is needed to eradicate regressivity from the tax system.

>> Check out the income inequality data in Italy

Key Findings

• The share of national income of the richest top 10%, top 1% and top 0.1% has been steadily increasing after the 2008 crisis;
• Young individuals represent the category that was most strongly hit by real income losses in the period 2004-2015.
• Gender income gaps exist throughout the income distribution, displaying a J-curved pattern: gender disparities are high at the bottom and even more extreme at the top.
• The tax system is only slightly progressive up to the 95th income percentile and regressive for the top 5% (see Figure). Moreover, it is regressive throughout the whole distribution when individuals are ranked with respect to their net wealth.

Figure: Tax Rate by Income Percentile

Policy recommendations

• Simulation exercises show that adopting a comprehensive taxation scheme (i.e. including capital incomes in the progressive taxation income base) improves the degree of progressivity of the system, but it is not able to remove regressivity at the top of the income distribution.
• A wealth tax is needed to eradicate the regressivity of the Italian tax system.

Contacts

Authors

• Demetrio Guzzardi, Institute of Economics and EMbeDS, Scuola Superiore Sant’Anna, Italy, demetrio.guzzardi@santannapisa.it
• Elisa Palagi, Institute of Economics and EMbeDS, Scuola Superiore Sant’Anna, Italy, elisa.palagi@santannapisa.it
• Andrea Roventini, Institute of Economics and EMbeDS, Scuola Superiore Sant’Anna,  Italy and OFCE Sciences Po, France, andrea.roventini@santannapisa.it
• Alessandro Santoro, Department of Economics, Management and Statistics, University of Milano-Bicocca, Italy, alessandro.santoro@unimib.it

Media Inquiries

Olivia Ronsain: olivia.ronsain@psemail.eu; +33 7 63 91 81 68

Acknowledgments

The authors thank Salvatore Morelli, Clara Martinez-Toledano, Marc Morgan, Antonio Scialà, Bertrand Garbinti, Jonathan Goupille-Lebret, David Splinter along with participants at the 2021 EAEPE, 2021 SIEP, 2021 World Inequality conference for useful comments and suggestions. All usual disclaimers apply. Elisa Palagi and Andrea Roventini acknowledge the support by the European Union’s Horizon 2020 research and innovation program under grant agreement No. 822781 – GROWINPRO.