The Contribution of the Tax and Transfers System to Poverty in Italy

This paper examines how the Italian tax and transfer system affected income poverty from 2006 to 2018. By using cross-sectional survey data from the Italian EU-SILC (European Union Statistics on Income and Living Conditions) and developing some ad hoc synthetic indices, the research is methodologically based on comparing the actual and a hypothetical situation. In the former, identified as “full government involvement,” the tax and transfer system affects the amount of equivalized disposable income; in contrast, in the latter, identified as “limited government involvement,” the equivalized disposable income corresponds to market income. Evidence was found of the ineffectiveness of the tax and transfer system. The negative impact, as compared to the non-involvement situation, is quantified as follows: for every person who benefitted from it and became non-poor, at least one or more people were negatively affected and became poor. As a result, the overall population of the poor in the actual situation has always been larger than that in the hypothetical scenario; nevertheless, despite the fiscal consolidation implemented by the Italian government, this distortion has gradually narrowed over time. Finally, according to the poverty indicators from the Foster, Greer, and Thorbecke class, the tax and transfer system also modified the income distribution of poor persons by raising the average and lowering the variance of their disposable income. This beneficial impact has become stronger in recent years.