Vertical equity and welfare: which effective redistribution? An application to Italian data

It is well-known that what matters for the distributional impact of personal income taxation is the tax schedule and where the taxpayers are located; in contrast, empirical researchers are used to fixing a common distribution of income before tax for all tax schedules being compared. This paper proposes an application to household micro-data and personal income tax systems by considering distributional differences before undertaking comparisons between tax schedules. It achieves an ‘independence of baseline’ property and standard results on redistribution of Jakobsson and Kakwani are preserved under specific conditions on the structure of pre-tax income distributions. The methodology is applied to Italian data between 1995 and 2000 and is present and discussed the empirical evidence and statistical questions arising from the application of the methodology. Some of the main findings are that Italian personal income tax reforms were able to preserve the original degree of redistribution.