One step forward and three steps back: pros and cons of a flat tax reform

Paolo Di Caro, Francesco Figari, Carlo Fiorio, Marco Manzo and Andrea Riganti

MPRA Paper from University Library of Munich, Germany

Abstract: We use a rich administrative dataset on individual tax returns from 2008 to 2015 to analyse the behavioural and distributive effects of a flat tax (FT) reform introduced in 2011 for residential property income in Italy replacing the progressive personal income tax. Linking a panel of individual tax data with cadastral property records, and using a difference-in-difference identification strategy, we address five research questions: (i) does the FT increase the probability of declaring a positive rental income to the tax authorities? (ii) does the FT increase the declared tax base? (iii) is the reduced tax burden shared with the tenant? (iv) does the FT affect the overall tax revenue? (v) who are the gainers of the policy? The estimated intention-to-treat effects suggest that the decrease of tax evasion is limited whereas tax burden reduction is large, it is not shared with tenants and it mostly benefits top-income taxpayers. Overall, top 1% of property owners reap about 20% of the overall lost tax revenues.

Keywords: Flat tax reform; administrative data; tax evasion; income distribution (search for similar items in EconPapers)
JEL-codes: D12 H24 H25 (search for similar items in EconPapers)
Date: 2022-07-01
New Economics Papers: this item is included in nep-acc, nep-eur, nep-iue, nep-pbe and nep-pub
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