The work analyzes the effects of a recomposition of the taxes payed by households on the equity and efficiency of the overall tax-benefit system. Three scenarios are evaluated, where the revenues from an increase in VAT rates are used to finance a reduction in Irpef (through a cut in the first statutory tax rate or an increase in tax credit for labour income) or in social security contributions. The evaluation is conducted through BIMic, the microsimulation model of the Banca d’Italia.
With respect to the current legislation scenario, the three simulations result in an increase in efficiency (as measured by lower marginal effective tax rates) and a reduction in equity (a higher Gini inequality index). The scenario with higher tax credits for labour income presents the highest rise in efficiency and the lowest decrease in equity.
