Ricercatore Universitario presso: Dipartimento di Economia "Marco Biagi"
- A note on the maximum value of the Kakwani index
[Articolo su rivista]
Mantovani, Daniela; Pellegrino, Simone; Vernizzi, Achille
The Kakwani index computes the departure from proportionality of a progressive income tax by measuring the difference between the concentration coefficient for tax liabilities and the Gini coefficient for pre-tax incomes. In case of maximum progression, that is a situation in which only one taxpayer faces the overall tax burden, the index reaches its theoretical maximum value, given by 1 minus the Gini coefficient for pre-tax incomes. We argue that this phenomenon can happen in one special case that is not satisfied in real-world personal income taxes. As a matter of fact, the overall tax revenue of a real-world personal income tax cannot be eventually paid only by the richest taxpayer. Therefore, the maximum concentration coefficient for taxes cannot be equal to 1, and, consequently, the maximum value of the Kakwani index cannot be 1 minus the Gini coefficient for pre-tax incomes, as generally described in the related literature. According to different hypotheses, we give evidence of this phenomenon by employing the Italian personal income tax.
- Measurement errors and tax evasion in annual incomes: evidence from survey data matched with fiscal data
Lalla, M.; Mantovani, D.; Frederic, P.
Individual records, referred to personal interviews of a survey on income carried out in Modena during 2012 and tax year 2011, had been matched with their corresponding records in the Ministry of Finance databases containing the fiscal incomes of tax year 2011. The analysis of the resulting data set suggested that the fiscal income was generally more reliable than surveyed income, but in the literature the exact opposite is often assumed. Moreover, the obtained data set enables identification of the factors determining over- and under-reporting, as well as measurement error, through a comparison of the surveyed income with the fiscal income, only for suitable categories of interviewees: the taxpayers who are obliged to respect the law (the constrained sector), and taxpayers who have many possibilities to evade (the unconstrained sector). The percentage of under-reporters (67.3%) was higher than those of over-reporters (32.7%). Level of income, age, and education were the main regressors affecting the measurement errors and the behaviours of taxpayers. Estimations of tax evasion and the impacts of personal factors affecting it were carried out following different approaches. The average of individual propensity to tax evasion was 25.93% of the corresponding fiscal income. The potential total tax evaders were about 10%.
- Comparing redistributive efficiency of tax-benefit systems in Europe
In empirical analysis, the Kakwani index is the most frequently used indicator for
comparing progressivity across countries and over time. The Kakwani is often assumed
to measure to what extent a policy design is targeted to the poor. It has, however, a major
drawback: it is not defined for net tax incidence—that is, the whole system of taxes and
benefits. Moreover, it is defined over different intervals for different pre-tax income
distributions and different average tax rates. This paper proposes an extension to Kakwani
index based on the concept of relative redistributive efficiency that is not affected by these
drawbacks. The Redistributive Efficiency index was compared to the Kakwani index for
taxes/benefits in EU countries by using Euromod baselines. In addition, the Redistributive
Efficiency index was computed on the whole tax-benefit system; that is, taxes and
benefits were evaluated together. Only Ireland and the UK combine high levels of
redistributive efficiency with a relevant amount of tax revenues and social expenditures.
They obviously obtain very high redistribution, above 15 points. Most of the countries
considered show an intermediate level of redistribution (between 7 and 12 points), but
with a different mix. A group of Central and Northern European countries plus Slovenia
and Hungary combine medium levels of redistributive efficiency and medium size, while
some Southern European countries (Spain and Portugal) and new members compensate
a rather low amount of transfer and taxes with quite high levels of efficiency. The
remaining new member states and Southern EU countries show a very low level of
redistribution, below 7 points. Interestingly, they vary in the level of tax burden and of
resources devoted to benefits but all of them show a poor Redistributive Efficiency. This
suggests that low Redistributive Efficiency plays a key role in explaining why certain
countries perform a limited amount of redistribution.
- Comparing redistributive efficiency of tax-benefit systems in Europe
In empirical analysis, the Kakwani index is the most frequently used indicator for comparing progressivity across countries and over time. The Kakwani is often assumed to measure to what extent a policy design is targeted to the poor. It has, however, a major drawback: it is not defined for net tax incidence—that is, the whole system of taxes and benefits. Moreover, it is defined over different intervals for different pre-tax income distributions and different average tax rates. This paper proposes an index based on the concept of relative redistributive efficiency that is not affected by these drawbacks. The Redistributive Efficiency index was compared to the Kakwani index for taxes/benefits in EU countries by using Euromod baselines. In addition, the Redistributive Efficiency index was computed on the whole tax-benefit system; that is, taxes and benefits were evaluated together. Only Ireland and the UK combine high levels of redistributive efficiency with a relevant amount of tax revenues and social expenditures. They obviously obtain very high redistribution, above 15 points. Most of the countries considered show an intermediate level of redistribution (between 7 and 12 points), but with a different mix. A group of Central and Northern European countries plus Slovenia and Hungary combine medium levels of redistributive efficiency and medium size, while some Southern European countries (Spain and Portugal) and new members compensate a rather low amount of transfer and taxes with quite high levels of efficiency. The remaining new member states and Southern EU countries show a very low level of redistribution, below 7 points. Interestingly, they vary in the level of tax burden and of resources devoted to benefits but all of them show a poor Redistributive Efficiency. This suggests that low Redistributive Efficiency plays a key role in explaining why certain countries perform a limited amount of redistribution.
- Does inequality harm democracy? An empirical investigation on the UK
[Articolo su rivista]
Soci, A.; Maccagnan, Anna; Mantovani, Daniela
This paper presents an empirical investigation about the effect of increasing economic inequality on
some aspects of the quality of a democracy. The main novelty of the paper lies in its methodology: it
applies to a single country - the UK – in a long run perspective. Using Eurobarometer data for the period
1974-2009, we select three questions and check whether an increase in inequality alters the answers to
these questions, subject to other control variables. In particular, as indicators of the quality of
democracy, we select the degree of Democracy-Satisfaction, the frequency of Political Discussion and
Participation in Election. Another novelty is the use of several measures of inequality: the Gini
coefficient, the Foster-Wolfson polarization index, the interdecile ratios P90/P10 and P90/P50, the
shares of top and bottom 1%, 5% and 10% income. Inequality indices have been computed using two
British household budget/expenditure surveys, i.e. the Family Expenditure Survey and the Family
Resources Survey. Using an array of indicators allows us to disentangle what happens in the different
parts of the income distribution and to avoid the dependence of the results on the choice of the
indicator. The estimation is carried out estimating probit and ordered probit models. The main finding is
that higher level of income inequality, no matter how it is measured, impacts negatively on citizens’
satisfaction with democracy and positively on their political discussion and intention to vote. This leads
to the issue of limiting inequality as an engine of deterioration in the quality of democracy, and
sustaining an active citizenship.
- the Effect of Taxes and benefits on Income Distribution in the Enlarged EU
Paulus, A.; M., Čok; F., Figari; P., Hegedűs; S., Kralik; N., Kump; O., Lelkes; H., Levy; C., Lietz; Mantovani, Daniela; L., Morawsky; H., Sutherland; P., Szivós; A., Võrk
Tax and benefit systems in the enlarged EU vary significantly in size and structure. We examine how taxesand benefits shape income distributions in 19 EU countries, focusing on the differences between WesternEuropean countries (EU15) and Eastern European countries (Estonia, Hungary, Poland, Slovenia). We useEUROMOD, the European tax-benefit microsimulation model, which simulates taxes and benefits forrepresentative samples of household micro-data and through a common framework which allows theanalysis of cross-country differences on a comparable basis. The analysis concentrates on the distributionand composition of incomes, and the effect of taxes and benefits on poverty and inequality.
- A Short Introduction to EUROMOD: An Integrated European Tax-Benefit Model
Lietz, C; Mantovani, Daniela
By the mid 1990s the potential and usefulness of microsimulation models for researching tax benefit systems had found widespread acceptance. Nevertheless models were not widely available for independent or academic research in all countries of the European Union (EU). Even more important, carrying out consistent comparative tax-benefit microsimulation analysis was still an apparently impossible task. The time seemed ready for a European-Union-wide tax-benefit microsimulation model. Such a model, EUROMOD, is now available. This chapter is devoted to a short introduction to EUROMOD, including the reasons why it was built, its added value compared to existing models, the trade-offs faced by its builders and lessons that have been learnt from developing such an integrated model. Moreover, it aims to provide an insight into the wide range of possible applications of EUROMOD, underlined by summarising some indicative findings of studies, which have used the model
- Pension Incomes in the European Union: Policy Reform Strategies in Comparative Perspective
Mantovani, Daniela; Papadopoulos, F; Sutherland, H; Tsakloglou, P.
This paper considers the effects on current pensioner incomes of reforms designed to improvethe long-term sustainability of public pension systems in the European Union. We useEUROMOD to simulate a set of common illustrative reforms for four countries selected onthe basis of their diverse pension systems and patterns of poverty among the elderly:Denmark, Germany, Italy and the UK. The variations in fiscal and distributive effects on theone hand suggest that different paths for reform are necessary in order to achieve commonobjectives across countries, and on the other provide indications of the appropriate directionsfor reform in each case.
- Povertà minorile e politiche pubbliche: una prospettiva europea
Mantovani, Daniela; Toso, S.
Questo capitolo prende in esame il fenomeno della povertà economica tra i minori da una prospettiva europea, con particolare riferimento al ruolo svolto dalle politiche nazionali di spesa e di prelievo nel contrastare il fenomeno medesimo.
- The distributive impact of tax evasion in Italy
MANTOVANI, Daniela; S., Nienadowska
The authors adopt a “direct approach” and microsimulation techniques to measure distributive effect of tax evasion in Italy. Previous research found that income declared in the SHIW was, on average, higher than the equivalent figures on the tax authority’s files. The percentage of incomeconcealed from the tax authorities decreased with income; consequently, if tax had notbeen evaded, disposable income would have been distributed in a slightly less equal.The present study is going to adopt their same approach, albeit with an explicitexamination and discussion of the question of whether the observed redistributive effectsof tax compliance is a result of re-ranking produced by tax evasion. Our results suggest that the assumptions made regarding re-ranking effects are bound to play a major role in redistributive effects estimations.
- An Age Perspective on Economic Well-Being and Social Protection in Nine OECD Countries
Thai Thanh, Dang; Herwig, Immervoll; Mantovani, Daniela; Kristian, Orsini; Holly, Sutherland
1. For a number of reasons, incomes vary strongly with age. The nature of this variation is of interest for a wide range of policy purposes. Since age structures differ across countries, knowledge about the incomes earned by different age groups is also necessary for understanding and interpreting international comparisons of overall inequality. This paper quantifies the economic well-being of different age groups and the extent to which they rely on incomes from public and private sources. The analysis aims at establishing how social benefits, and the taxes needed to finance them, affect income levels and income disparities across different age groups. Results are compared across nine OECD countries.2. We use tax-benefit microsimulation models in conjunction with detailed household micro-data in order to illustrate the influence of patterns of market incomes, household structures and different types of social protection measures on the income distribution among and between individual age groups during the late 1990s. The aim is to establish a “baseline” using information from a period that represents an early phase of the projected increase in dependency ratios and therefore also pre-dates some of the major reforms that are being introduced to address these demographic developments. Given the strong existing focus on macro-economic and fiscal consequences of demographic changes, we argue that such an explicit distributional perspective is urgently needed. The results for the late 1990s provide a counter-factual for determining the relative importance of demographic trends and policy reforms in driving observed changes in resource distributions and financial well-being.3. Results show that existing social protection systems are to a very large extent “old-age” protection systems, with those aged 65 and over typically receiving almost three times the (net) cash transfers of the average person. In some countries, cash benefits are even more targeted towards elderly individuals, while comparatively little is spent on securing adequate resources for younger generations. Nevertheless, in most countries, the incidence of “low” incomes is higher among old-age individuals than for the population as a whole.4. Even without accounting for health-related spending, which is not considered here, these patterns clearly highlight the challenges associated with ageing populations. The results also underline the importance of carefully designed safety-net measures, however. Existing spending patterns and distributional outcomes suggest that there is considerable scope for re-balancing social protection spending without necessarily compromising distributional objectives.
- Household Incomes and Redistribution in the European Union; Quantifying the Equalizing Properties of Taxes and Benefits
Immervoll, H; H., Levy; Mantovani, Daniela; C., Lietz; C., O'Donoghue; Sutherland, H; Verbist, G.
The systems of direct taxes and cash benefits in the Member States of the European Union vary considerably in size and structure. We explore their direct impacts on cross-sectional income inequality (termed “redistributive effect” for the purpose of this paper) using EUROMOD, a tax-benefit microsimulation model for the European Union. This relies on harmonised household micro-data representative of each national population together with simulations of entitlements to cash benefits and liabilities for taxes and social contributions. It allows us to draw a more comprehensive – and comparable – picture of the combined effects of transfers and taxes than is usually possible. We decompose the redistributive effect of tax-benefit systems to assess and compare the effectiveness of individual policies at reducing income disparities. The following categories of benefits and taxes are considered both individually and in combination: income taxes, social contributions, cash benefits designed to target the poor or redistribute inter-personally (through means-testing) as well as cash benefits intended to redistribute intra-personally across the lifecycle (through social insurance or contingency-based entitlement). We derive results for the 15 “old” members of the European Union and present them for each country separately as well as for the EU-15 as a whole.
- The sensitivity of poverty rates to macro-level changes in the European Union
[Articolo su rivista]
H., Immervoll; H., Levy; C., Lietz; Mantovani, Daniela; H., Sutherland
The authors use the European Union-wide tax–benefit model, EUROMOD,to establish baseline rates of relative poverty in 1998 for each of the MemberStates and then explore their sensitivity to (a) an increase in unemployment,(b) real income growth and (c) an increase in earnings inequality. They findthat poverty rates are sensitive to such ‘macro-level’ changes but that thesize—and in some cases the direction—of the effect varies across countries. Ifsuch indicators are to be used in judging the effectiveness of social policies, it isimportant that differences in responsiveness are fully understood.