Figures and tables in French do it better. The distributive effect of introducing French family fiscal policies in Italy

Abstract

Italy has one of the lowest fertility rates in the world. A solution, often advocated to incentivize fertility, could be to reform the Italian tax and benefit system taking inspiration from the French fiscal family treatment. This would imply to introduce the quotient system, where taxation is not on an individual basis, as in Italy, but the tax applies to the family as a whole, and to introduce the cash-benefits provided in France to families. The purpose of our paper is to assess the distributive effects of such a fiscal reform. We estimate these effects using MicroReg, a static microsimulation model able to predict the first order effects of tax and benefit system reforms. We show that a shift to the French income tax system would lead to decreased income inequality and a substantial tax reduction for households with three children, especially those who are medium-high income. The new income tax would result in a substantial disincentive to female labour supply, albeit mitigated by greater progressivity in favour of low income groups with children. Moreover, adopting French-style family benefits would further reduce inequality and increase disposable income for households with at least two children. However, those with just one child would be slightly worse off.

This article contains 6 figures and 9 tables.

Figures

**Figure 1.** Distributive effects by deciles of equivalent gross household income (a)Tax difference (euro) (b) % change of income tax incidence.

**Figure 2.** Distributive effects by number of children and deciles of equivalent gross household income (a) Tax difference by number of children (euro) (b) % change of income tax incidence.

**Figure 3.** Distributive effects by number of children and deciles of equivalent gross household income (a) Family transfers difference by number of children (euro) (b) % change of family transfers.

**Figure A1–1.** Figure B.1 Distributive effects by deciles of equivalent gross household income (a)Tax difference (euro) (b) % change of income tax incidence.

**Figure A1–2.** Figure B.2 Distributive effects by number of children and deciles of equivalent gross household income (a) Tax difference by number of children (euro) (b) % change of income tax incidence.

**Figure A1–3.** Figure B.3 Distributive effects by number of children and deciles of equivalent gross household income (a) Family transfers difference by number of children (euro) (b) % change of family transfers.

Tables

Table 1. The French “family quotient” (QF)

Household type and children	Part
Married or cohabiting couples	2
Single	1
Single parent with at least one dependent child	1.5
Widow/er/s with at least one dependent child	2
First child	0.5
Second child	0.5
Every child after the second	1

Table 2. Income tax features in Italy and France

	Italy	France
Taxation unit	Individual	“Fiscal household”
Gross income	Total individual income	Total household income
Deductions	Deductions for pension contributions, first home cadastral income and others	Deduction for income source
Net taxable income	Total individual income net of deductions (y)	Total household income net of deductions (y) divided by number of “parts” (QF)
Legal rates	23% up to 15,000 euros 27% from 15,000–28,000 euros 38% from 28,000–55,000 euros 41% from 55,000–75,000 euros 43% over 75,000 euros	0% from 0 to 9,700 euros 14% from 9,701–26,791 euros 30% from 26,792–71,826 euros 41% from 71,827–152,108 euros 45% over 152,108 euros
Tax credits	Tax credits for income source Tax credits for household dependents (spouse, children and other household members) Other minor tax credits	Tax relief (Décote) and other minor tax credits
Net tax	$y \times r a t e - t a x c r e d i t s$	$M a x {\frac{y}{Q F} \times r a t e \times Q F; I_{q}^{M A X}} - t a x c r e d i t s$

Table 3. Average tax rate paid on participation for non-working Italian women by household equivalent income deciles and number of children

Decile/n° children	0	1	2	3 or more
1	−2.24%	−3.02%	−4.73%	−6.1%
2	2.63%	2.39%	0.90%	−1.9%
3	5.91%	9.72%	6.65%	3.4%
4	7.31%	9.31%	9.99%	8.8%
5	9.27%	8.92%	11.98%	7.2%
6	6.72%	11.97%	9.57%	8.4%
7	8.11%	10.76%	6.67%	11.0%
8	8.80%	14.82%	13.02%	17.3%
9	9.16%	10.28%	16.90%	17.2%
10	11.25%	13.24%	18.19%	13.5%

Source: MicroReg based on EUSILC, 2016 (2016).

Table 4. Average tax rate paid on participation for non-working Italian women by household equivalent income deciles

Decile	Predicted income	Participation tax rate today	Participation tax rate after reform	Difference	Share facing higher tax rate after reform
1	21,766.40	17.25%	14.07%	−3.18%	5.34%
2	21,219.29	17.21%	18.75%	1.54%	58.13%
3	21,002.73	18.61%	24.89%	6.28%	86.83%
4	22,074.95	17.73%	26.05%	8.32%	86.59%
5	22,650.10	17.30%	26.91%	9.61%	87.50%
6	29,427.52	20.02%	27.94%	7.92%	87.43%
7	27,369.19	17.98%	26.28%	8.30%	86.06%
8	21,432.34	15.09%	25.39%	10.30%	82.34%
9	26,948.72	17.74%	27.62%	9.88%	82.82%
10	28,348.04	17.78%	29.93%	12.15%	81.66%

Source: MicroReg based on EUSILC, 2016 (2016).

Table 5. Percentage distribution of subsidies by deciles of equivalent gross household income

Decile	Post reform							Pre reform
Decile	AF	PAJE	PN	ARS	ASF	CF	Total	BB	PN	AF	AF3	Total
1	18%	17%	13%	30%	24%	31%	19%	17%	9%	11%	45%	15%
2	21%	19%	21%	32%	15%	40%	23%	28%	15%	22%	46%	24%
3	12%	14%	10%	23%	11%	13%	14%	9%	7%	17%	9%	15%
4	10%	16%	18%	11%	13%	7%	11%	12%	13%	13%	0%	12%
5	9%	13%	10%	2%	8%	5%	9%	7%	7%	9%	0%	8%
6	9%	13%	16%	1%	9%	5%	9%	10%	11%	8%	0%	8%
7	9%	6%	10%	0%	6%	0%	7%	8%	9%	9%	0%	8%
8	6%	1%	1%	0%	4%	0%	4%	8%	13%	6%	0%	6%
9	4%	0%	0%	0%	7%	0%	2%	1%	8%	4%	0%	3%
10	2%	0%	1%	0%	4%	0%	1%	0%	6%	2%	0%	2%
Total	100%	100%	100%	100%	100%	100%	100%	100%	100%	100%	100%	100%

Source: MicroReg based on EUSILC, 2016 (2016).

Table 6. Indices of inequality of the equivalent gross household income

	Pre reform			After reform
	point	low	high	point	low	high
Gross income (Gini)	0.3977	0.3919	0.4032
Gross income – tax (Gini)	0.3515	0.3455	0.3567	0.3493	0.3439	0.3549
Tax-Kakwani	0.1883	0.1848	0.1908	0.1899	0.1868	0.1935
Transfer-Kakwani	−0.703	−0.7309	−0.6753	−0.7547	−0.7767	−0.7331
Disposable income	0.3467	0.3409	0.3519	0.3449	0.3396	0.3507

Source: MicroReg based on EUSILC, 2016 (2016). Confidence intervals obtained with 200 bootstrap resamplings. Note that 95% confidence bounds do no overlap for Gross income – tax (Gini) and Transfer-Kakwani but do overlap for Tax-Kakwani and Disposable income.

Table A.1. Amount and recipients of Italian subsidies by benefit and number of children

		1	2	3+	Total
Baby bonus	Average amount (euro)	1,117	1,397	1,422	1,281
Baby bonus	Recipients (thousand)	165	168	54	388
	Amount (billion euro)	185	235	78	498
Birth bonus	Average amount (euro)	800	834	825	817
Birth bonus	Recipients (thousand)	225	203	57	485
	Amount (billion euro)	180	169	47	396
Family allowance	Average amount (euro)	800	1,369	2,614	1,248
Family allowance	Recipients (thousand)	1,748	1,706	423	3,878
	Amount (billion euro)	1,398	2,337	1,106	4,841
Municipal family allowances for households with three children	Average amount (euro)			1,696	1,696
	Recipients (thousand)			316	316
	Amount (billion euro)			536	536
Total	Average amount (euro)	926	1,523	3,274	1,478
Total	Recipients (thousand)	1,903	1,799	539	4,242
	Amount (billion euro)	1,764	2,741	1,767	6,271

Source: MicroReg based on EUSILC, 2016 (2016)

Table A.2. Amount and recipients of French subsidies by benefit and number of children

		1	2	3+	Total
Allocation Familiale	Average amount (euro)		1,938	4,491	2,392
Allocation Familiale	Recipients (thousand)		3,210	694	3,904
	Amount (billion euro)		6,222	3,119	9,341
Prestation d´Accueil du Jeune Enfant	Average amount (euro)	1,994	2,075	2,181	2,052
Prestation d´Accueil du Jeune Enfant	Recipients (thousand)	560	554	160	1,273
	Amount (billion euro)	1,230	1,213	392	2,836
Prime de naissance	Average amount (euro)	928	966	962	951
Prime de naissance	Recipients (thousand)	126	152	49	327
	Amount (billion euro)	121	153	52	325
Allocation de rentrée scolaire	Average amount (euro)	377	579	915	575
Allocation de rentrée scolaire	Recipients (thousand)	759	1,242	427	2,428
	Amount (billion euro)	286	719	390	1,395
Allocation de soutien familial	Average amount (euro)	110	219	323	157
Allocation de soutien familial	Recipients (thousand)	766	403	64	1,233
	Amount (billion euro)	84	88	21	193
Complément familial	Average amount (euro)			2,616	2,616
Complément familial	Recipients (thousand)			294	294
	Amount (billion euro)			890	890
Total	Average amount (euro)	943	2,586	6,757	2,605
	Recipients (thousand)	1,700	3,220	695	5,614
	Amount (billion euro)	1,722	8,395	4,863	14,980

Source: MicroReg based on EUSILC, 2016 (2016)

Table A.3. Heckman selection model for women’s participation wage

Variable	Coeff	P-value	St. sig.
log labor income
age	0.0628	0.0106	***
age2	−0.0005	0.0001	***
north	0.0832	0.053
center	−0.0336	0.0489
comp. edu.	−0.4583	0.0731	***
secondary edu	−0.2166	0.03299	***
constatnt	8.2617	0.2634	***
working
age	0.1312	0.009	***
age2	−0.0015	0.0001	***
north	0.6996	0.0337	***
center	0.5289	0.0389	***
comp. edu.	−1.1664	0.0434	***
secondary edu	−0.4476	0.0417	***
# children	−0.1908	0.0155	***
constatnt	−1.7206	0.1881	***
Mills
lambda	−0.4535	0.1173	***
rho	0.5032
sigma	0.9011

Note: Dependent variables are the log of the yearly labour income and the probability to be working, number of observations 9,687, censored 3,235, uncensored 6,452. Wald $χ^{2} = 599.04$

Source: MicroReg based on EUSILC, 2016 (2016)