Fiscal drag, discretionary policy measures and the purchasing power of Italian households in 2022-2025

Nicola Curci () and Antonella Tomasi
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Nicola Curci: Bank of Italy

No 998, Questioni di Economia e Finanza (Occasional Papers) from Bank of Italy, Economic Research and International Relations Area

Abstract: This paper analyses the dynamics of household disposable income during and after the 2022–2023 inflationary shock. Using a microsimulation approach based on Banca d'Italia's BIMic model, we decompose changes in disposable income into four components: (i) nominal income adjustments to inflation; (ii) real income growth; (iii) fiscal drag and benefit erosion; and (iv) policy interventions. Our results indicate that, on average, household purchasing power eventually returned to pre-crisis levels in 2025. Over 2022-2025, disposable income growth was slightly higher than inflation for households in the three middle income quintile groups. It was broadly in line with inflation for the bottom quintile and fell slightly short of it for the top quintile.

Keywords: fiscal drag; benefit erosion; inflation (search for similar items in EconPapers)
JEL-codes: D31 E62 H24 (search for similar items in EconPapers)
Date: 2026-01
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Persistent link: https://EconPapers.repec.org/RePEc:bdi:opques:qef_998_26

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