Economia Politica

, Volume 36, Issue 1, pp 19–35 | Cite as

Fiscal policy for households and public budget constraint in Italy

  • Irfan AhmedEmail author
  • Claudio Socci
  • Francesca Severini
  • Rosita Pretaroli


This study quantifies the economic impact of tax-cut policy implemented by Italian government on GDP and income distribution among institutional sectors. To this end, a computable general equilibrium model is calibrated on a social accounting matrix for Italian economy where households are disaggregated into five classes according to the income level. Two policy scenarios are simulated: the first considers an increase in transfers to the low-income households financed by a reduction in government expenditure; the second simulation considers a reduction in income taxes on low-income financed by an increase, of the same amount, in income tax on high-income households. The results of first policy scenario confirm the negative impact on GDP and disposable incomes of all institutional sectors except low income households. On the other hand, results of second policy scenario present the positive impact on GDP and disposable incomes of other institutional sectors.


Fiscal policy Social accounting matrix CGE analysis 

JEL Classification

E2 H2 H3 


  1. Alesina, A., & Ardagna, S. (2010). Large changes in fiscal policy: Taxes versus spending. In J. R. Brown (Ed.), Tax policy and the economy (Vol. 24). Cambridge: National Bureau of Economic Research.Google Scholar
  2. Arnold, J. M., Brys, B., Heady, C., Johansson, A., Schwellnus, C., & Vartia, L. (2011). Tax policy for economic recovery and growth. The Economic Journal, 121(550), 59–80.CrossRefGoogle Scholar
  3. Barrell, R., & Weale, M. (2009). The economics of a reduction in VAT. Fiscal Studies, 30, 17–30.CrossRefGoogle Scholar
  4. Beaudry, Paul, & Franck, P. (2014). News-driven business cycles: Insights and challenges. Journal of Economic Literature, 52(4), 993–1074.CrossRefGoogle Scholar
  5. Bleaney, M. F., Gemmell, N., & Kneller, R. (2001). Testing the endogenous growth model: public expenditure, taxation and growth over the long-run. Canadian Journal of Economics, 34, 36–57.CrossRefGoogle Scholar
  6. Bloom, N. (2014). Fluctuations in uncertainty. Journal of Economic Perspectives, 28(2), 153–176.CrossRefGoogle Scholar
  7. Blundell, R. (2009). Assessing the temporary VAT cut policy in the UK. Fiscal Studies, 30, 31–38.CrossRefGoogle Scholar
  8. Ciaschini, M., Pretaroli, R., Severini, F., & Socci, C. (2012). Regional double dividend from environmental tax reform: an application for Italian economy. Research in Economics, 66(3), 273–283.CrossRefGoogle Scholar
  9. Ciaschini, M., Pretaroli, R., Severini, F., & Socci, C. (2014). Health care services and economic impact: A dynamic CGE approach. University of Macerata. Accessed 12 June 2015.
  10. Crossley, T. F., Low, H., & Wakefield, M. (2009). The economics of a temporary VAT cut. Fiscal Studies, 30, 3–16.CrossRefGoogle Scholar
  11. Gale, W., & Samwick, A., A. (2014). Effects of income tax changes on economic growth. Accessed 20 Dec 2015.
  12. Gruner, H. P., & Heer, B. (2000). Optimal flat-rate taxes on capital—a re-examination of Lucas’ supply side model. Oxford Economic Papers, 52, 289–305.CrossRefGoogle Scholar
  13. Hansen, L. P., Sargent, T. J., & Tallarini, T. D. (1999). Robust permanent income and pricing. Review of Economic Studies, 66(4), 873–907.CrossRefGoogle Scholar
  14. Hungerford, T., L. (2012). Taxes and the economy: An economic analysis of the top tax rates since 1945. Congressional research service report. R42729. Accessed 30 June 2015.
  15. Ilut, C. L., & Schneider, M. (2014). Ambiguous business cycles. American Economic Review, 104(8), 2368–2399.CrossRefGoogle Scholar
  16. Kneller, R., Bleaney, M. F., & Gemmell, N. (1999). Fiscal policy and growth: evidence from OECD countries. Journal of Public Economics, 74, 171–190.CrossRefGoogle Scholar
  17. Laitner, J. (1995). Quantitative evaluations of efficient tax policies for Lucas’ supply side models. Oxford Economic Papers, 47, 471–492.CrossRefGoogle Scholar
  18. Lucas, R. E. (1990). Supply-side economics: an analytical review. Oxford Economic Papers, 42, 293–316.CrossRefGoogle Scholar
  19. Mendoza, E. G., Milesi-Ferretti, G. M., & Asea, P. (1997). On the ineffectiveness of tax policy in altering longrun growth: Harberger’s superneutrality conjecture. Journal of Public Economics, 66, 99–126.CrossRefGoogle Scholar
  20. Mertens, Karel, & Ravn, Morten O. (2012). Empirical evidence on the aggregate effects of anticipated and unanticipated US tax policy shocks. American Economic Journal: Economic Policy, 4(2), 145–181.Google Scholar
  21. Morrone, H. (2015). Assessing the impact of distributive policies on the Brazilian economy using an SCGE model. Economic System Research, 27(1), 1–18.CrossRefGoogle Scholar
  22. Round, J. (1985). Decomposing multipliers for the economic system involving regional and world trade. Economic Journal, 95, 383–399.CrossRefGoogle Scholar
  23. Stokey, N. L., & Rebello, S. (1995). Growth effects of flat-rate taxes. Journal of Political Economy, 103, 519–550.CrossRefGoogle Scholar
  24. Taylor, L. (1990). Socially relevant policy analysis: Structuralist computable general equilibrium models for the developing world. Boca raton: MIT Press.Google Scholar

Copyright information

© Springer International Publishing AG, part of Springer Nature 2018

Authors and Affiliations

  1. 1.Jazan UniversityJazanKingdom of Saudi Arabia
  2. 2.University of MacerataMacerataItaly

Personalised recommendations