 Taxation and labour supply decisions: an evaluation of the earned income tax credit in ItalyLuca Villamaina and Paolo Acciari Working Papers from Ministry of Economy and Finance, Department of Finance Abstract: The earned income tax credit - so-called ’monthly e80 bonus’ - introduced in Italy in 2014, has been characterized by a rapid phase-out area for budget-constraints reasons, leading to very high effective marginal tax rates. The aim of our analysis is to empirically investigate whether this policy design has effectively determined a reduction of the intensive margin of the labour supply of employees. The empirical analysis is based on the longitudinal electronic database of Personal Income Tax returns from 2011 to 2017 assembled by the Department of Finance of the Italian Ministry of Economy and Finance. The timing and the structure of the reform allow us to exploit the difference-in-discontinuities design using the before/after with the discontinuous policy change. Despite a close to 100% effective average tax rate for a substantial income range, a unique feature among EU and OECD countries, we found that the tax credit design had no negative effect on changes of the labour effort in Italy, challenging the economic theory but confirming previous empirical evidence. Keywords: EITC; Public Economics; Labor Market; Labor supply; Personal Income Tax (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:ahg:wpaper:wp2023-20 Access Statistics for this paper More papers in Working Papers from Ministry of Economy and Finance, Department of Finance |
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