Austerity and distributional policy
Sebastian Blesse and
No 20-028, ZEW Discussion Papers from ZEW - Leibniz Centre for European Economic Research
What are the effects of austerity on distributional policy? We exploit the autonomy of Italian municipalities in setting non-linear income taxes and the exogenous introduction of a fiscal rule to show that austerity increases income tax progressivity. Consistent with this evidence, we find that in a panel of countries austerity correlates with higher marginal tax rates on top- but not on average-earners. The increase in progressivity in Italy is driven by high-skilled mayors, while low-skilled mayors raise taxes uniformly. In the election after the reform, high-skill mayors have higher reelection odds than low-skill mayors, while there was no difference beforehand.
Keywords: austerity; fiscal rules; non-linear income taxation; difference-in-discontinuity (search for similar items in EconPapers)
JEL-codes: D78 H24 H70 (search for similar items in EconPapers)
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Working Paper: Austerity and Distributional Policy (2020)
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:zewdip:20028
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