Ernesto Longobardi

Sharing the Personal Income Tax Among Levels of Government: Some Open Issues from the Italian Experience

This paper considers some open issues concerning the role of the personal income tax in regional and local finance. It compares different technical instruments to share the personal income tax among levels of government, analyzing particularly the differential effects of the two main forms of overlapping taxation, the surtax and the surcharge. It is proved that both instruments increase the redistributional impact of personal income taxation, the surcharge to a larger extent than the surtax. The second part of the paper describes the present framework of the sharing of income tax in Italy, based upon regional and local surtaxes, and the new perspectives opened by the reform of intergovernmental fiscal relations recently approved by Parliament.

Measuring Horizontal Fiscal Imbalances: the case of Italian Municipalities

ABSTRACT In the literature on fiscal federalism, vertical fiscal imbalance has been widely studied, while the theme of horizontal fiscal imbalance and inequality among local governments, due to differences in their fiscal capacities, has been less explored. This article contributes to fill the gap. A new method to compute fiscal capacities based on regression analysis is proposed, which can overcome some of the drawbacks of traditional methods such as the representative tax system. This new approach is then employed to evaluate the fiscal capacities of Italian municipalities over the period 2002–2010. Finally two global measures of the horizontal fiscal imbalance are used to evaluate the equity implication of a major policy change occurred in 2008 in Italian municipal finance.In the literature on fiscal federalism, vertical fiscal imbalance has been widely studied, while the theme of horizontal fiscal imbalance and inequality among local governments, due to differences in their fiscal capacities, has been less explored. This article contributes to fill the gap. A new method to compute fiscal capacities based on regression analysis is proposed, which can overcome some of the drawbacks of traditional methods such as the representative tax system. This new approach is then employed to evaluate the fiscal capacities of Italian municipalities over the period 2002–2010. Finally two global measures of the horizontal fiscal imbalance are used to evaluate the equity implication of a major policy change occurred in 2008 in Italian municipal finance.

On some recent proposals of public debt restructuring in the Eurozone

This paper considers the issue of sovereign debts in the Eurozone. The reasons for the reduction of public debt, which are quite strong in the present circumstances of slow growth, are briefly discussed with reference to EMU countries. Then the different possible strategies to reduce the public debt/GDP ratio while avoiding any form of debt restructuring are considered. The choice to cut public debt by means of a violent and unexpected upsurge of inflation, which in the past has often been the preferred solution, is not viable today in the Union. On the other side, alternative option for reducing the public debt by means of extraordinary finance instruments, such as wealth taxes, privatization of public companies and sale of public assets can assure only limited results. Thus the policy presently adopted in the EU, relying on the progressive accumulation of surpluses in the general government’s primary budget (the austerity solution), seems to be the only practicable exit. However the alternative of restructuring has been investigated with growing attention in the last few years. Two distinct perspectives have been followed. On one side a number of proposals deal with the issue of existing (legacy) debt. On the other one, several projects have been presented aimed to establish a permanent insolvency mechanism for sovereigns. The former group of projects wants to avoid the private sector involvement and are based on complex mechanism of securitization of future revenue of member states (seigniorage and taxes). There are reasons to doubt that they are something substantially different from the policies currently followed and, especially, that can be more favourable to growth. The latter group of proposals, concerning the institution of an ordered procedure of insolvency for sovereigns, are meant to make effective the no bail out principle, whose compliance has proved very difficult so far. The question is raised if this perspective is really realisable in the absence of any element of fiscal union.

The Crisis of Economic Governance in the European Union

This paper deals with the origin and the evolution of the European system of fiscal rules and discusses the perspectives for future developments. The early debate about the design of establishing a monetary union in a not optimal currency area, with decentralized fiscal policies, is reconsidered. The main developments of the European rulesDbased fiscal governance are discussed, starting with the Maastricht Treaty and going through the institution and the evolution of the Stability and Growth Pact (SGP). After drawing a brief outline of the system of fiscal rules in force at present, the key issue of the estimation of potential output is considered. The shortcomings of the estimation practices are, to a large extent, responsible for the inadequate results produced by the shift from nominal to structural targets, which was the main aim of the SGP reforms. The paper concludes sketching the debate on the reform of the European economic governance.

International Trends in Personal Income Tax: Some Aspects of Vertical and Horizontal Equity

Moving from the observation of the two most important innovations in personal income tax experiences at the international level, the introduction of flat taxes or the flattening of existing taxes, and the introduction of dual income taxes or a movement towards duality, the paper considers the equity implications of such changes. It first compares a graduate rate tax with a flat one in terms of both vertical and horizontal equity. After a review of the existing literature, a simulation is presented on the effects of replacing the Italian personal income tax (IRPEF) with a flat tax with the same revenue. It is shown that a flat tax with a 33% rate would produce a redistributive impact very close to that of IRPEF, while being horizontally equitable in an equivalence scale framework. It is shown that the result of a better performance of a flat tax than a graduate rate tax in a horizontal equity perspective and within the class of constant relative scales is not sensitive to the choice of scale. In many respects the dual income tax can also represent an improvement on equity grounds if compared with the traditional personal income tax.