Austerity and Distributional Policy

ZEW Discussion Paper
ZEW Discussion Paper

Austerity and Distributional Policy

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.

Alpino, Matteo, Zareh Asatryan, Sebastian Blesse and Nils Wehrhöfer (2020), Austerity and Distributional Policy , ZEW Discussion Paper No. 20-028, Mannheim.

Authors Matteo, Alpino // Zareh Asatryan // Sebastian Blesse // Nils Wehrhöfer