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Did VAT change redistribute purchasing power in Italy?

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  • Paolo Liberati

Abstract

This paper assesses the effects of the changes of the Value Added Tax (VAT) rates in Italy for the period 1988-1997, questioning their overall redistributive impact compared with an equal-revenue proportional tax rate. By using the theory of marginal tax reforms and the AWARETAX microsimulation model, it is shown that most real relative price changes due to the selective use of VAT rates have caused a welfare loss which is increasingly negative in the degree of inequality aversion. It means that many VAT changes implemented during the last decade have been welfare inferior to a distributionally neutral proportional change of all VAT rates providing the same revenue.

Suggested Citation

  • Paolo Liberati, 2000. "Did VAT change redistribute purchasing power in Italy?," Working Papers in Public Economics 40, University of Rome La Sapienza, Department of Economics and Law.
    • Handle: RePEc:sap:wpaper:wp40
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    Marginal tax reforms; VAT; Redistribution; Social Welfare; Italy.;
    All these keywords.

    JEL classification:

    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • D63 - Microeconomics - - Welfare Economics - - - Equity, Justice, Inequality, and Other Normative Criteria and Measurement
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies

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