This paper discusses the structural features of Irpef (the personal income tax in Italy), analysing its effects on income redistribution and labour supply incentives. Moreover, by way of an example, the paper evaluates two counterfactual hypotheses that modify the 'Irpef bonus' with respect to the 2019 legislation. The analysis is carried out using Banca d'Italia's static microsimulation model BIMic.
Italy's personal income tax (Irpef) plays a decisive role in making the Italian tax system progressive; almost all of the redistribution that comes from Irpef is due in equal measure to the structure of the income brackets and to deductions. We find that effective marginal tax rates can be very high, also at relatively low levels of income, and display a large variability within the same income class. The traditional trade-off between equity and efficiency is confirmed in the two hypotheses of an 'Irpef bonus' reform.
Published in 2020 in: Economia Italiana, 2020/1, pp. 165-192.
