A Tax-Benefit Microsimulation Model for Italy: A Partial Evaluation of Fiscal Consolidation in the Period 2011-2014

Abstract

This paper develops a tax-benefit microsimulation model for the Italian economy to evaluate the impact of fiscal policy measures on household income. The simulations are performed on a dataset obtained from the matching of IT-SILC 2011 with HBS 2010, SHIW 2010 and IT-SILC 2008 to integrate income variables with consumption, financial assets and the tax base of property tax. The model quantifies the impact (the so-called first round effects) on household income of a set of fiscal policies implemented in Italy in the period 2011-2014: the increase in the ordinary VAT rate, the reintroduction of the property tax on the main home, the increase in the earnings tax credit, the 80-euro tax credit for employees, the modification of the personal income tax base and finally the rise of the tax rate on yields of deposits. We assess also the effects of changes of regional income taxes, despite not being part, strictly speaking, of the consolidation package. As a whole, the simulated average change in disposable income is negative.