Toward a Comprehensive Tax Reform for Italy

IMF Working Papers, February 21, 2020

Source details

Evaluate elements of a comprehensive reform of the Italian tax system.
Reform options guided by the principles of:
- reducing complexity,
- broadening the tax base,
- lowering marginal tax rates, especially the tax burden on labor income.

Revenue and distributional implications of personal income and property tax reforms assessed with EUROMOD.
A microsimulation model developed to evaluate VAT reform options.
Subject coverage includes: Disposable income, National accounts, Personal income, Personal income tax, Property tax, Taxes, Value-added tax.
Keywords used in analysis: base-broadening revenue-neutral VAT reform, compliance gap, Disposable income, EUROMOD, Italy, market value, microsimulations, Personal income, Personal income tax, Property tax, property tax reform, reform option, revenue loss, Revenue neutral, tax expenditure, tax liability, taxable income, Value-added tax, VAT, VAT compliance gap, VAT liability, VAT rate, VAT reform, VAT simulation, VAT system, WP.

Simulations suggest a substantial reduction in the tax burden on labor income can be obtained with a revenue-neutral base-broadening reform that:
- streamlines tax expenditures, and
- updates the property valuation system.
A comprehensive reform would benefit low- and middle-income households the most by:
- lowering significantly their overall current tax liability, and
- resulting in increased progressivity of the tax system.

Pursue base-broadening, revenue-neutral reforms to allow for lower marginal tax rates on labor income.
Streamline and rationalize tax expenditures to reduce complexity and revenue loss.
Update the property valuation system as part of property tax reform to support revenue-neutral adjustments.
Consider VAT reform options evaluated via microsimulation to address VAT compliance gaps and VAT liability issues while maintaining revenue neutrality.