Redistribution, Vertical Equity and Welfare: An Application to Italian Data

Abstract

In order to illustrate the redistributional effects of income tax reforms this study proposes an application by considering distributional differences before undertaking comparisons between tax schedules. It compares results of two approaches based on microlevel data, the well-known Lorenz dominance criterion and the “transplant-and-compare” procedure of Dardanoni and Lambert (2002; J. Public Econ. 86:99–122). Both approaches are applied to Italian micro-data data for 1995-2000 and empirical evidence and questions arising from the implementation of these methodologies are presented and discussed. Some of the main findings are that Italian personal income tax reforms were able to preserve the degree of redistribution.