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High Inflation and Wage Rigidity: The Implicit Response of the Italian Tax-Benefit System

Author

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  • Stefano Boscolo
  • Francesco Figari

Abstract

We study the redistributive effect of inflation-induced revenue and expenditure variations in the Italian tax-benefit system in a context in which pensions and social transfers are indexed to inflation and nominal wage growth struggles to keep up. By means of the EUROMOD microsimulation model, we isolate the contribution of i ) fiscal drag through the personal income tax, ii ) indexation rules and policy changes regarding social insurance contributions and iii ) pension and social transfer indexation rules related to the overall redistributive effect of the tax-benefit system and its vertical and horizontal components. The findings suggest that benefit indexation rules contribute to a non-negligible extent to income redistribution, that fiscal drag has a small regressive effect and that the implicit redistribution favours pensioners over private-sector employees.

Suggested Citation

  • Stefano Boscolo & Francesco Figari, 2023. "High Inflation and Wage Rigidity: The Implicit Response of the Italian Tax-Benefit System," Center for the Analysis of Public Policies (CAPP) 0187, Universita di Modena e Reggio Emilia, Dipartimento di Economia "Marco Biagi".
    • Handle: RePEc:mod:cappmo:0187
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    More about this item

    Keywords

    inflation; indexation; fiscal drag; redistribution; EUROMOD;
    All these keywords.

    JEL classification:

    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • H24 - Public Economics - - Taxation, Subsidies, and Revenue - - - Personal Income and Other Nonbusiness Taxes and Subsidies

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