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Equity and efficiency aspects of Italian debt reduction

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  • Fehr, Hans
  • Ruocco, Anna

Abstract

This paper examines the distributional and efficiency effects of different debt reduction schemes in Italy. To finance a given deficit reduction path, we introduce the so-called Eurotax and endogenously adjust either the consumption tax rate or lump-sum transfers in order to balance the budget. The analysis is based on a numerically specified overlapping generations model of the Auerbach-Kotlikoff type which distinguishes five different lifetime in-come classes within each age cohort. Our simulations suggest that the debt reduction in Italy will increase the welfare of future generations between 1 and 3 per cent of their lifetime resources. Mainly this is due to the implied reduction in future net tax burdens. However, factor price repercussions as well as efficiency gains might also be substantiaüy beneficial to future generations. Finally, while the Eurotax is clearly progressive, consumption taxation is revealed to be, at least in our model, regressive even in the long run.

Suggested Citation

  • Fehr, Hans & Ruocco, Anna, 1997. "Equity and efficiency aspects of Italian debt reduction," Tübinger Diskussionsbeiträge 104, University of Tübingen, School of Business and Economics.
    • Handle: RePEc:zbw:tuedps:104
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    1. Fehr, Hans & Ruocco, Anna, 1999. "Equity and efficiency aspects of the Italian debt reduction," Economic Modelling, Elsevier, vol. 16(4), pages 569-589, December.
    2. repec:hal:spmain:info:hdl:2441/2545 is not listed on IDEAS
    3. Fehr, Hans & Ruocco, Anna & Wiegard, Wolfgang, 1997. "Who bears the burden of debt reduction in Italy?," Tübinger Diskussionsbeiträge 105, University of Tübingen, School of Business and Economics.
    4. Paola Veroni, 2001. "Dix ans de politique budgétaire au service de l'euro : l'exemple italien," SciencePo Working papers Main hal-01016956, HAL.
    5. Kudrna, George & Tran, Chung, 2018. "Comparing budget repair measures for a small open economy with growing debt," Journal of Macroeconomics, Elsevier, vol. 55(C), pages 162-183.
    6. Fehr, Hans, 1999. "Welfare Effects of Dynamic Tax Reforms," Beiträge zur Finanzwissenschaft, Mohr Siebeck, Tübingen, edition 1, volume 5, number urn:isbn:9783161470165, September.
    7. Paola Veroni, 2001. "Dix ans de politique budgétaire au service de l'euro : l'exemple italien," Post-Print hal-01016956, HAL.
    8. George Kudrna & Chung Tran, 2015. "Budget Repair Measures: Tough Choices for Australia's Future," ANU Working Papers in Economics and Econometrics 2015-628, Australian National University, College of Business and Economics, School of Economics.
    9. Paolo Pertile & Veronica Polin & Pietro Rizza & Marzia Romanelli, 2015. "The fiscal disadvantage of young Italians: a new view on consolidation and fairness," The Journal of Economic Inequality, Springer;Society for the Study of Economic Inequality, vol. 13(1), pages 27-51, March.
    10. repec:spo:wpecon:info:hdl:2441/2545 is not listed on IDEAS
    11. Hirte, Georg, 2001. "Pension Policies for an Aging Society," Beiträge zur Finanzwissenschaft, Mohr Siebeck, Tübingen, edition 1, volume 14, number urn:isbn:9783161475399, September.
    12. repec:hal:wpspec:info:hdl:2441/2545 is not listed on IDEAS
    13. repec:spo:wpmain:info:hdl:2441/2545 is not listed on IDEAS

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