The redistributive effects of the PIT decentralization: evidence from the Italian case

In recent years Regions and Municipalities in Italy have been assigned the power to apply local surtaxes on the personal income tax levied at national level. The aim of this paper is twofold. First, from a positive perspective, we measure the redistributive effects produced by the adoption of these local surtaxes. By using a sample of tax returns representative on a regional basis, we find that the redistributive effects are slightly enhanced by the introduction of local surtaxes as a result of an increase in tax incidence, given that the introduction of local surtaxes is not offset by a corresponding reduction of national taxation, and a relatively smaller reduction in tax progressivity. Vertical redistribution and horizontal inequity are also distinctly considered. It turns out that at both national and regional level local surtaxes slightly increase these two components, roughly in the same proportion, whereas variations are relatively differentiated at the regional level. Secondly, from a normative perspective, we design a possible welfare-improving tax reform in which the simplification of the personal income tax is combined with its partial decentralization. When the redistributive impact of this reform is assessed, the new tax structure welfare-dominates the current centralized tax both at the national level and within any single Region