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Tackling the regressivity of the Italian tax system: An optimal taxation framework with heterogeneous returns to capital

Author

Listed:
  • Matteo Dalle Luche

    (LMU - Ludwig Maximilian University [Munich] = Ludwig Maximilians Universität München)

  • Demetrio Guzzardi

    (SSSUP - Scuola Universitaria Superiore Sant'Anna = Sant'Anna School of Advanced Studies [Pisa])

  • Elisa Palagi

    (SSSUP - Scuola Universitaria Superiore Sant'Anna = Sant'Anna School of Advanced Studies [Pisa])

  • Andrea Roventini

    (SSSUP - Scuola Universitaria Superiore Sant'Anna = Sant'Anna School of Advanced Studies [Pisa])

  • Alessandro Santoro

    (UNIMIB - Università degli Studi di Milano-Bicocca = University of Milano-Bicocca)

Abstract

In this paper, we exploit the new data available from the European Central Bank's Distributional Wealth Accounts (DWA) to reconstruct the distribution of capital income in Italy by accounting for heterogeneous returns to capital.With respect to previous estimates, we find that capital income is more concentrated along the income distribution and the Italian tax system is more regressive with lower tax rates hinging on the top 7%. We show that such rates are remarkably lower than those suggested by an optimal taxation approach and we provide estimates for revenues and inequality reductions that could be attained by applying (higher) optimal rates either to capital income or wealth while controlling for various degrees of behavioral responses. These results provide a direction for revenue-increasing and inequality-reducing tax reforms in Italy.

Suggested Citation

  • Matteo Dalle Luche & Demetrio Guzzardi & Elisa Palagi & Andrea Roventini & Alessandro Santoro, 2024. "Tackling the regressivity of the Italian tax system: An optimal taxation framework with heterogeneous returns to capital," Working Papers halshs-04753529, HAL.
    • Handle: RePEc:hal:wpaper:halshs-04753529
    Note: View the original document on HAL open archive server: https://shs.hal.science/halshs-04753529v1
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