Analysing the Redistributive Effects of the Italian PIT with Tax Files

Abstract

This chapter studies the redistributive effects of the Italian personal income tax by using novel individual tax returns. The application of a decomposition of the reranking term shows that the set of personal income tax instruments can have different effects on vertical and horizontal equity. The distributional analysis is conducted for Italy as a whole and for the twenty Italian regions in order to add a new dimension of inquiry to the study of regional income disparities in this country. Results for the two main tax expenditures for the owner-occupied house, the deduction for the main residence and the mortgage interest tax credit, throw new light into the total redistributive consequences of such tax expenditures in Italy. It is found that, the mortgage interest tax credit, a tax measure often criticised at both national and international level, has a small, positive effect on vertical equity, but it has negative consequences on horizontal equity. A discussion of the pros and cons of using administrative tax data for studying redistribution is also provided