RICERCA ITALIANA     

Reforming the fiscal system (IRE e IRES): efficiency and equity issues

Università degli Studi di Parma

Abstract

This research project intends to investigate in a comprehensive way the allocative and redistributive consequences of the recent Italian reforms of fiscal system in Italy, focussing on the critical assessment of the personal income tax system over the past 10 years and of the future reforms perspectives. We will analyze in detail the theoretical and empirical issues related to these reforms (and their relationships with the equivalent ones introduced in EU and other countries) in the light of the recent developments of economic analysis and in an historical perspective, going back to the Italian tradition.

The current reforms in Italy had the objective to modernize, rationalize and increase the transparency of the fiscal system and to reduce its burden. The new ambitious project of reduction of the fiscal burden involves two distinct phases, of which the first one was designed in the 2003 public budget law and the second one is expected to be incorporated in the 2004 public budget law. Our study will analyze the impact of the two distinct phases and possible alternative schemes, not only at an individual level but more in general considering the family as a unit and its interaction with fiscal and social security measures. Accordingly, we will build and validate a dynamic microsimulation model, including a new personal income tax module in the MIND model (build to study the reforms of the pensions' system cf. Vagliasindi, 2004). In this way, we will >>>

Principal Investigator

Pietro VAGLIASINDI Università degli Studi di PARMA

Research Objectives

The main purpose of the present research project is to analyze the possible socio-economic impact of changing patterns of the Italian system of income taxation over the last 10 years, in order to assess policy makers' choices in terms of efficiency and equity and its possible interaction with the social security system. We will also offer a detailed and rational evaluation of the recent theoretical models and of the latest reform proposals related to the taxation of personal and corporate incomes (also in the light of the recent evolution in other countries).
Specifically, the recent Italian reforms of the income taxation had the objective to modernize, rationalize and increase the transparency of the fiscal system (simplifying the tax rates schedule -reducing the number of income brackets- and introducing different schemes of tax credits, fiscal exemptions, family allowances, …), improving the efficiency of the market, promoting development and economic stability and reducing poverty and inequalities (that are crucial issues in the political and economic debate).
To assess new fiscal schemes, there is a need to build a model able to determine their impact in terms of efficiency and equity. The microsimulation tools that we will use allow us to assess whether a single reform or the overall fiscal system based on income is socially desirable (e.g. from a redistributive point of view) and in line with to the stated objectives of the ruling class.
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First Results

In the first phase we will reach the partial results described below.

1. Acquisition of documentation and teaching materials to make available to participants and more in general to students and to the large public of interested .

2. On-line bibliographies on the different issues and study field already investigated and links to on-line web-pages fully available to participants and more in general to interested scholars and students.

3. Production of working papers and lay out of preliminary papers representing the first drafts of the book to be written in English.

4. Preliminary version of the book in Italian on the socio-economic effect of the evolution of the tax system, gathering the different contributions of the participants.

5. New contacts with external researchers and national and foreign institutions also to program possible comparative studies and detailed analysis problems of integration EU.

6. Formulation of basic dynamic models and modules to microsimulate the effects of fiscal policies on families and firms.

7. Modelling the joint effects of the Fiscal and Social Security system on individuals' and families' choices related to the participation to the labour market.

8. Development of hardware and scientific software and completion of the first contributions in terms of theoretical and empirical work related to models building and >>>

Timescale

24 months

National and international background

The public financial activity creates distortions that change individual choices. The policy makers must then choose among different alternatives in terms of efficiency and equity. These considerations are particularly important in Italy, where the financial activity often considered short term objectives, creating a tax system where each category of taxpayer had an incentive to maximize his own privileges, also at the expenses of the less advantaged categories. Therefore it is necessary to assess fiscal reforms (and their interactions with social security), analysing the various aspects of the allocative and redistributive impact in the medium-long period, to improve efficiency and equity.
There is a wide international economic literature dealing on equity and efficiency issues in fiscal reforms. Taxation affects economic efficiency by introducing as well as correcting distortions, cf. Auerbach, Hines (2002).
Many recent detailed works are related to international experiences of fiscal reforms: in Japan (De Witt, 2002), in Australia (Freebairn, 1999), in Germany (Hettich, Arndt, 2001), (Strulik, 2003) and in Finland (Valkonen, 2001). A few years ago, the perspectives and problems of fiscal reforms have been also reconsidered in the Italian case following different perspectives by Arachi (2002), Baldini, Bosi (2002), Bernardi (2002), Giannini (2002), Giarda (2002), Guerra (2002), Paladini (2002), Petretto (2002), Visco (2002). These, and other works, may >>>