Austerity and Distributional Policy

73 Pages Posted: 29 Jun 2020

See all articles by Matteo Alpino

Matteo Alpino

Bank of Italy

Zareh Asatryan

ZEW – Leibniz Centre for European Economic Research

Sebastian Blesse

ZEW – Leibniz Centre for European Economic Research

Nils Wehrhöfer

Deutsche Bundesbank

Multiple version iconThere are 2 versions of this paper

Date Written: 2020

Abstract

What are the effects of austerity on distributional policy? We exploit the autonomy of Italian municipalities in setting non-linear income taxes and the exogenous introduction of a fiscal rule to show that austerity increases income tax progressivity. Consistent with this evidence, we find that in a panel of countries austerity correlates with higher marginal tax rates on top- but not on average-earners. The increase in progressivity in Italy is driven by high-skilled mayors, while low-skilled mayors raise taxes uniformly. In the election after the reform, high-skill mayors have higher reelection odds than low-skill mayors, while there was no difference beforehand.

Keywords: austerity, fiscal rules, non-linear income taxation, difference-in-discontinuity

JEL Classification: D78, H24, H70

Suggested Citation

Alpino, Matteo and Asatryan, Zareh and Blesse, Sebastian and Wehrhöfer, Nils, Austerity and Distributional Policy (2020). ZEW - Centre for European Economic Research Discussion Paper No. 20-028, Available at SSRN: https://ssrn.com/abstract=3634449 or http://dx.doi.org/10.2139/ssrn.3634449

Matteo Alpino (Contact Author)

Bank of Italy ( email )

Corso Cavour, 4
Bari, 70121
Italy

Zareh Asatryan

ZEW – Leibniz Centre for European Economic Research ( email )

P.O. Box 10 34 43
L 7,1
D-68034 Mannheim, 68034
Germany

Sebastian Blesse

ZEW – Leibniz Centre for European Economic Research ( email )

P.O. Box 10 34 43
L 7,1
D-68034 Mannheim, 68034
Germany

Nils Wehrhöfer

Deutsche Bundesbank ( email )

Wilhelm-Epstein-Str. 14
Frankfurt/Main, 60431
Germany

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