Did VAT change redistribute purchasing power in Italy?

Paolo Liberati

No 40, Working Papers in Public Economics from Department of Economics and Law, Sapienza University of Roma

Abstract: This paper assesses the effects of the changes of the Value Added Tax (VAT) rates in Italy for the period 1988-1997, questioning their overall redistributive impact compared with an equal-revenue proportional tax rate. By using the theory of marginal tax reforms and the AWARETAX microsimulation model, it is shown that most real relative price changes due to the selective use of VAT rates have caused a welfare loss which is increasingly negative in the degree of inequality aversion. It means that many VAT changes implemented during the last decade have been welfare inferior to a distributionally neutral proportional change of all VAT rates providing the same revenue.

Keywords: Marginal tax reforms; VAT; Redistribution; Social Welfare; Italy. (search for similar items in EconPapers)
JEL-codes: D12 D63 H23 (search for similar items in EconPapers)
Pages: 33
Date: 2000-11
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