Italian incomes and fiscal system, inequalities are increasing: a joint study by the Sant'Anna School in Pisa and the University of Milano-Bicocca shows that the top 1%, pays less taxes than the remaining 99% of taxpayers

Income inequalities in Italy have grown in favor of the top 1%, which, pays less taxes as a share of their income than the rest of the 99% of taxpayers. This has been shown by a joint study from the Sant'Anna School in Pisa and the University of Milano-Bicocca, published in the scientific journal Journal of the European Economic Association. Overall, the Italian tax system appears "mildly progressive", and as highlighted by researchers, it becomes "even regressive" for the richest 5% of income earners, who pay an effective rate lower than the one paid by 95% of taxpayers. The study also confirms significant differences based on the type of predominant income: employees pay more taxes, followed by self-employed individuals, retirees, and finally those who mainly receive financial and real estate income.

Demetrio Guzzardi, author of the study and researcher in Economics at the Sant'Anna School in Pisa, emphasizes, "This work combines various data sources, such as income declarations, household surveys from Istat and Bank of Italy, estimates on the distribution of net wealth, and distribute the entire 'net national income' at the individual level, correcting for tax evasion. This allowed identifying income groups that have lost the most in recent years." The researchers estimate that from 2004 to 2015, while real national income decreased by 15%, the poorest 50% of Italians experienced the greatest loss with a drop of about 30%.

Within the poorest 50%, young individuals aged 18 to 35 are most affected, losing about 42% of their income. Gender inequality is significant across all income groups and reaches extreme levels in the top 1%, where women earn about half of men’s earnings.

The study by the Sant'Anna School in Pisa and the University of Milano-Bicocca shows that the poorest 50% of Italian adults hold less than 17% of the national income and live on less than 13 thousand euros per year. On the other hand, Elisa Palagi, author of the study and researcher in Economics at the Scuola Superiore Sant'Anna, underlines that "the top 1% of the country holds about 12% of the national income, i.e., an average of 310 thousand euros per year, mostly obtained from financial income, corporate profits, and self-employment income, largely derived from the role of corporate administrators. Only a very small part of the income of the richest is earned through employment income." In particular, the 50 thousand Italians making up the top 0.1% of the country's richest individuals hold 4.5% of the national income with average earnings exceeding one million euros annually, a figure that the poorest 50% could achieve only by saving their entire income for 76 years.

The study also compares income concentration in Italy at the international level. By comparing estimates obtained from similar research conducted for the United States and France, the study finds that Italy has a level of income concentration similar to that of France, and that both countries are far from the extreme concentration observed in the United States. However, what raises concerns, according to Alessandro Santoro, author of the study and Pro-Rector for Budget at the University of Milano-Bicocca, is the decreasing trend in the share of income held by lower-income groups. "Unlike the situation in France, where the weaker groups have seen a modest increase in their income share, in Italy, the opposite is observed, with the poorest groups becoming increasingly disadvantaged."

In addition to distributing the entire national income, the study also distributes individually the amount of taxes collected by the government (income tax, regional tax on productive activities, property tax, taxes on interests, dividends, and all financial transactions, consumption taxes, social contributions, and additional minor taxes). Andrea Roventini, author of the study and director of the Institute of Economics at the Sant'Anna School, comments, "we have shown that the entire Italian tax system is only mildly progressive for the lowest 95% of income distribution, with a tax burden increasing from 40% to 50%. The system becomes even regressive for the top 5% of the richest taxpayers, with an effective rate dropping to 36% for those earning over 500 thousand euros annually. The tax system is even consistently regressive when ranking individual by the distribution of net wealth instead of income."

The lower tax incidence for higher incomes is primarily explained by factors such as the actual regressiveness of the VAT (which impacts less on richest citizens who save more), the lower burden of social contributions for incomes exceeding 100 thousand euros, and the greater relevance for richest taxpayers of financial income and income from property rentals, taxed at favorable rates of 12% or 26%.

In conclusion, the study highlights "the need to initiate a deep and serious discussion about the current state of the Italian tax system. The evidence of regressivity that only favors higher income groups - according to the authors of the study - underscores the urgency of targeted reforms that do not penalize lower incomes but aim to correct imbalances by reducing inequalities and promoting a progressive distribution of the tax burden. Initiating this debate - they conclude - represents a crucial step toward a fairer and more inclusive Italian tax system, capable of supporting sustainable economic growth and ensuring tangible benefits for the entire society."

The scientific article is available at https://academic.oup.com/jeea/advance-article-abstract/doi/10.1093/jeea/jvad073/7472114.