CLE Seminar: Elisa Palagi

Seminar Series

Friday, 7 February 2025, 12 p.m.

Room G.242

Elisa PALAGI, Scuola Superiore Sant’Anna

Inequality and Taxation in Italy: Insights from Distributional National Accounts and Optimal Taxation

Abstract: This work reconstructs novel series on income distribution in Italy combining survey data, tax data, and income and wealth accounts both at the national and regional levels, and it analyzes the overall progressivity of the tax system. Our findings reveal a higher income concentration at the top 1% and 0.1% with respect to previous studies, with the share of national income of the top 10%, top 1%, and top 0.1% steadily increasing after the 2008 crisis. Our results shed further light on the multifaceted nature of inequality in Italy: youngest individuals, women, and inhabitants of Southern regions have been increasingly exposed to growing levels of inequality. Additionally, the Italian tax system is only slightly progressive up to the 95th percentile of the income distribution, and regressive for the top 5%. When employing an updated distribution of capital income, the Italian tax system is even more regressive, with the top 0.1% being subject to an effective tax rate of 32%. 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, accounting for various degrees of behavioral responses. These results provide a direction for revenue-increasing and inequality-reducing tax reforms in Italy.