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Austerity and distributional policy

Matteo Alpino, Zareh Asatryan, Sebastian Blesse and Nils Wehrhöfer

No 20-028, ZEW Discussion Papers from ZEW - Leibniz Centre for European Economic Research

Abstract: 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)
Date: 2020
New Economics Papers: this item is included in nep-eur
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Working Paper: Austerity and Distributional Policy (2020) Downloads
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:zewdip:20028

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