This paper relies on Banca d'Italia's static microsimulation model (BIMic) to analyse the impact on fairness (income redistribution and absolute poverty), and on efficiency (labour supply incentives) of two regulatory changes to the Italian tax and benefit system in 2022: (i) the introduction of the single and universal allowance for children (AUU, Assegno unico e universale); (ii) the revision of personal income tax (IRPEF).
The changes to personal income tax and the introduction of the single and universal allowance for children (AUU) will lead to an increase in disposable income of 1.5 per cent on average (€530 more than under the previous legislation) with an estimated budget cost of €13.7 billion when fully operational. The combined effect of the two interventions increases the progressive nature of the system and reduces inequality, mainly thanks to the AUU. At the same time, monetary disincentives to the supply of labour are reduced both in terms of participation and in terms of hours worked, mostly because of the revision of personal income tax.
