Redistributive effects of local indirect taxes

Abstract

The paper after reviewing the existing literature on tax assignment across levels of government discusses the merits and drawbacks in the attribution of taxes on consumption to intermediate levels of government. Then it considers three options of consumption taxation for the Italian regions: a general consumption tax (retail sales tax); a specific tax on durables; and a specific tax on local utilities. Using data from ISTAT and the Bank of Italy we compare the redistributive effects at regional level of the three options. As expected, all the alternatives are regressive although the specific tax on utilities shows a higher incidence for the poorest families especially in the Northern regions. Therefore, from an equity perspective a general consumption tax should be preferred. Otherwise specific measures to correct the reverse redistributive effects of the tax on local utilities should be introduced.