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Investigating the Incidence of Value Added Tax on Households Income: New Evidence from Italy

  1. Cristina Cirillo  Is a corresponding author
  2. Lucia Imperioli
  3. Marco Manzo
  1. Ministry of Economy and Finance, Department of Finance, Italy
Research article
Cite this article as: C. Cirillo, L. Imperioli, M. Manzo; 2021; Investigating the Incidence of Value Added Tax on Households Income: New Evidence from Italy; International Journal of Microsimulation; 14(3); 85-118. doi: 10.34196/ijm.00243
15 figures and 9 tables

Figures

Tax Register Income Distribution Before and After Matching. Source: Authors elaboration based on Istat, 2018a Istat (2018a) and HBS 2017 data. Note: For graphical purposes, figures report the Kernel density distribution for income values below 200,000 Euros.
HBS Households Expenditures Distribution Before and After Matching. Source: Authors elaboration based on HBS 2017 data. Note: Graphs report the Kernel density distribution of expenditures.
Net Consumption, by Households Income Deciles and VAT rates. Source: Authors elaboration.
VAT Incidence on Households Disposable Income, by Income Deciles. Source: Authors elaboration.
Actual VAT Incidence on Households Income, by Income Deciles and VAT Rates. Source: Authors elaboration.
VAT Incidence on Households Income at simulation rates. Source: Authors elaboration. Note: VAT simulation rates are 7% and 20%.
VAT Incidence difference between current legislation and simulation rates. Source: Authors elaboration.
HBS Households Expenditures Distribution before and after a Matching based on estimated consumption using SHIW. Source: Authors elaboration.
Actual VAT Incidence on Households Disposable Income, by Income Deciles. Source: Authors elaboration. Note: The graph shows the average VAT incidence within each households income decile and the corresponding confidence intervals.
Actual and Expected VAT Incidence, by Bundle. Source: Authors elaboration. Note: The bundles refer, respectively, to: 1-Food and Non-Alcoholic Beverages; 2-Alcoholic Beverages and Tobacco; 3-Clothing and Footwear; 4-Housing, Water, Gas, Electricity and Other Fuels; 5-Furnishings, Household Equipment and Routine Maintenance Of The House; 6-Health; 7-Transport; 8-Communications; 9-Recreation and Culture; 10-Education; 11-Restaurants and Hotels; 12-Miscellaneous Goods and Services.
=Consumption Composition, by Bundle and Income Deciles. Source: Authors elaboration. Note: The bundles refer, respectively, to: 1-Food and Non-Alcoholic Beverages; 2-Alcoholic Beverages and Tobacco; 3-Clothing and Footwear; 4-Housing, Water, Gas, Electricity and Other Fuels; 5-Furnishings, Household Equipment and Routine Maintenance Of The House; 6-Health; 7-Transport; 8-Communications; 9-Recreation and Culture; 10-Education; 11-Restaurants and Hotels; 12-Miscellaneous Goods and Services.
Consumption Incidence on Income, by Bundle. Source: Authors elaboration. Note: The bundles refer, respectively, to: 1-Food and Non-Alcoholic Beverages; 2-Alcoholic Beverages and Tobacco; 3-Clothing and Footwear; 4-Housing, Water, Gas, Electricity and Other Fuels; 5-Furnishings, Household Equipment and Routine Maintenance Of The House; 6-Health; 7-Transport; 8-Communications; 9-Recreation and Culture; 10-Education; 11-Restaurants and Hotels; 12-Miscellaneous Goods and Services.
VAT Incidence on Income and Expenditure, by VAT Rates and Income Deciles. Source: Authors elaboration.
Actual VAT Incidence on Households Income at Simulation Rates, by VAT Rates. Source: Authors elaboration.
VAT Incidence Difference between Simulation and Current Legislation Rates, by Bundle. Source: Authors elaboration. Note: The bundles refer, respectively, to: 1-Food and Non-Alcoholic Beverages; 2-Alcoholic Beverages and Tobacco; 3-Clothing and Footwear; 4-Housing, Water, Gas, Electricity and Other Fuels; 5-Furnishings, Household Equipment and Routine Maintenance Of The House; 6-Health; 7-Transport; 8-Communications; 9-Recreation and Culture; 10-Education; 11-Restaurants and Hotels; 12-Miscellaneous Goods and Services.

Tables

Table 1
Review of Existing Studies on Italian Datasets Integration
Authors and Year Data Sources
HBS SILC SHIW ISTATMultipurpose Tax Register
Sisto (2006)
Pisano and Tedeschi (2014)
Curci and Savegnano (2019)
De Vincenti and Pollastri (2004)
Cifaldi and Neri (2013)
Taddei (2012)
Maitino et al. (2013)
Giarda et al. (2015)
Baldini et al. (2015)
Cammeraat and Crivelli (2020)
Donatiello et al. (2014)
Centro Studi Confindustria (2019)
VATSIM-DF (II)
  1. Source: Authors elaboration.

Table 2
Comparison between SILC and HBS Samples before Matching
Mean in SILC Mean in HBS p-value for difference 95% C.I.
Tax Register household total income 31,474.26 31,375.21 0.795 -648.206 846.317
Tax Register household taxable income 30,584.36 30,553.10 0.930 -668.825 731.349
Tax Register first-earner total income 23,972.73 24,195.20 0.479 -837.955 393.008
Tax Register first-earner taxable income 23,158.80 23,285.98 0.673 -717.342 462.993
Tax Register household land and buildings income 1,641.48 1,592.43 0.463 -81.94 180.034
Tax Register other household income 3,260.84 3,365.34 0.649 -554.238 345.246
First-earner age 59.49 59.02 0.006 0.136 0.798
First-earner sex 0.59 0.60 0.002 -0.026 -0.006
Household size 2.16 2.32 0.000 -0.186 -0.137
Number of children 0.26 0.32 0.000 -0.077 -0.05
First-earner occupation
 Employed 0.52 0.49 0.000 0.032 0.032
 Unemployed 0.03 0.05 0.000 -0.03 -0.022
 Homemaker 0.04 0.08 0.000 -0.041 -0.032
 Retired 0.38 0.36 0.000 0.017 0.036
 Student, unable to work or other 0.03 0.02 0.000 0.012 0.019
First-earner education level
 None 0.04 0.04 0.002 -0.01 -0.002
 Primary education 0.17 0.18 0.072 -0.015 0.001
 Lower secondary education 0.27 0.28 0.423 -0.013 0.005
 Vocational education (2-3 years) 0.07 0.08 0.326 -0.008 0.003
 Upper secondary education 0.29 0.27 0.000 0.013 0.031
 University bachelor’s degree 0.13 0.14 0.000 -0.024 -0.01
 Post graduate education 0.03 0.01 0.000 0.012 0.017
Type of Family
 Single 0.37 0.31 0.000 0.055 0.074
 Couple with no children 0.21 0.24 0.000 -0.038 -0.021
 Couple with 1 child 0.16 0.17 0.016 -0.017 -0.002
 Couple with 2 or more children 0.12 0.17 0.000 -0.063 -0.049
 Other 0.14 0.11 0.000 0.023 0.036
  1. Source: Authors elaboration.

  2. Notes: sample weights are not used for estimations.

Table 3
Comparison between SILC and HBS Samples after Matching
Mean in SILC Mean in HBS p-value for difference 95% C.I.
Tax Register household total income 31,474.26 30,638.12 0.075 -83.54 1,755.83
Tax Register household taxable income 30,584.36 30,178.54 0.360 -463.892 1,275.54
Tax Register first-earner total income 23,972.73 23,783.18 0.595 -508.693 887.787
Tax Register first-earner taxable income 23,158.80 23,201.90 0.900 -717.76 631.569
Tax Register household land and buildings income 1,641.48 1,033.65 0.000 483.753 731.91
Tax Register other household income 3,260.84 1,501.07 0.000 1,363.42 2,156.12
First-earner age 59.49 60.67 0.000 -1.672 -0.676
First-earner sex 0.59 0.62 0.000 -0.05 -0.02
Household size 2.16 2.01 0.000 0.123 0.187
Number of children 0.26 0.22 0.000 0.029 0.059
First-earner occupation
 Employed 0.52 0.48 0.000 0.048 0.048
 Unemployed 0.03 0.02 0.020 0.001 0.008
 Homemaker 0.04 0.03 0.017 0.001 0.01
 Retired 0.38 0.45 0.000 -0.076 -0.046
 Student, unable to work or other 0.03 0.02 0.000 0.015 0.023
First-earner education level
 None 0.04 0.03 0.002 0.003 0.012
 Primary education 0.17 0.20 0.000 -0.043 -0.018
 Lower secondary education 0.27 0.29 0.009 -0.032 -0.004
 Vocational education (2-3 years) 0.07 0.05 0.000 0.014 0.026
 Upper secondary education 0.29 0.31 0.085 -0.027 0.002
 University bachelor’s degree 0.13 0.11 0.000 0.007 0.024
 Post graduate education 0.03 0.01 0.000 0.015 0.021
Type of Family
 Single 0.37 0.41 0.000 -0.058 -0.027
 Couple with no children 0.21 0.26 0.000 -0.058 -0.032
 Couple with 1 child 0.16 0.15 0.012 0.003 0.023
 Couple with 2 or more children 0.12 0.11 0.270 -0.004 0.013
 Other 0.14 0.07 0.000 0.063 0.077
  1. Source: Authors elaboration.

  2. Notes: sample weights are not used for estimations.

Table 4
Comparison between SILC and HBS Samples after Matching, by Income Deciles
Average Household Total Income(Tax Register Data) p-value for difference 95% C.I.
SILC HBS
Decile 1 109.84 97.09 0.362 -14.690 40.191
Decile 2 6,123.82 6,100.1 0.853 -227.601 275.042
Decile 3 12,119.33 12,100.75 0.808 -227.601 275.042
Decile 4 17,048.14 17,003.47 0.479 -79.197 168.543
Decile 5 21,418.1 21,422.48 0.944 -127.396 118.644
Decile 6 26,253.72 26,184.46 0.337 -72.261 210.775
Decile 7 32,128.57 32,141.58 0.886 -191.308 165.297
Decile 8 40,270.44 40,385.72 0.382 -373.659 143.105
Decile 9 52,844.87 52,972.46 0.561 -557.837 302.661
Decile 10 100,286.9 92,542.72 0.000 3642.137 11,846.200
  1. Source: Authors elaboration.

Table 5
Expected VAT, VAT Gap and Actual VAT, by VAT Rate
VAT rate Expected VAT VAT Gap Actual VAT
4% 2,909,905,600 307,970,616 2,601,934,984
5% 114,201,667 17,058,621 97,143,046
10% 23,543,919,955 3,817,302,226 19,726,617,733
22% 76,787,961,011 8,186,778,456 68,601,182,579
Total 103,355,988,233 12,329,109,919 91,026,878,342
  1. Source: Authors elaboration.

Table A1
Comparison between SILC and HBS Samples after a Matching based on SHIW
Mean in SILC Mean in HBS p-value for difference
Total consumption 19,738.43 19,589.20 0.437
First-earner age 59.49 59.14 0.149
First-earner sex 0.59 0.63 0.000
Household size 2.16 2.12 0.011
Number of children 0.26 0.27 0.498
First-earner occupation
 Employed 0.52 0.52 0.285
 Unemployed 0.03 0.03 0.871
 Homemaker 0.04 0.04 0.263
 Retired 0.38 0.38 0.914
 Student, unable to work or other 0.03 0.03 0.026
First-earner education level
 None 0.04 0.03 0.098
 Primary education 0.17 0.17 0.695
 Lower secondary education 0.27 0.29 0.024
 Vocational education (2-3 years) 0.07 0.07 0.243
 Upper secondary education 0.29 0.30 0.350
 University bachelor’s degree 0.13 0.12 0.237
 Post graduate education 0.03 0.02 0.037
Type of Family
 Single 0.37 0.43 0.000
 Couple with no children 0.21 0.23 0.057
 Couple with 1 child 0.16 0.16 1.000
 Couple with 2 or more children 0.25 0.18 0.000
 Other 0.00 0.00 0.000
Table B1
Comparison between SILC and HBS samples after an alternative matching procedure based on estimated consumption relying on the SHIW dataset
Tax Register variables not used in this matching procedure Mean in SILC Mean in HBS p-value for difference
Tax Register household total income 31,474.26 30,324.65 0.013
Tax Register household taxable income 30,584.36 29,429.39 0.008
Tax Register first-earner total income 1,641.48 1,397.99 0.001
Tax Register first-earner taxable income 3,260.84 3,057.20 0.424
Tax Register household land and buildings income 23,972.73 24,133.68 0.666
Tax Register other household income 23,158.80 23,220.48 0.863
  1. Note: We computed total consumption in SILC by relying on SHIW estimates.

Table A3
Expected and Actual VAT Incidence, by Equivalent Disposable Income Deciles
Equivalent disposable income deciles Total Disposable Income Expected VAT Actual VAT Expected VAT Incidence on Income (%) Actual VAT Incidence on Income (%)
1 42,656,515,904 6,440,205,569 5,717,503,164 15.1 13.4
2 79,589,374,269 8,006,812,939 7,084,726,118 10.1 8.9
3 93,403,298,062 8,124,126,841 7,179,631,781 8.7 7.7
4 106,856,669,734 8,744,791,259 7,721,938,519 8.2 7.2
5 122,544,889,789 9,182,400,875 8,084,834,747 7.5 6.6
6 132,819,790,461 10,418,560,067 9,178,307,726 7.8 6.9
7 148,735,451,716 10,772,263,843 9,473,851,362 7.2 6.4
8 163,114,644,148 11,774,392,072 10,352,181,184 7.2 6.3
9 189,448,962,698 13,370,000,513 11,739,157,681 7.1 6.2
10 305,787,404,365 16,522,434,255 14,494,746,061 5.4 4.7
  1. Source: Authors elaboration.

Table A7
VAT Simulation Rates
Bundles Group of expenditures VAT rates in current legislation VAT simulation rates
Food and non-Alcoholic Beverages Rice, pasta products and couscous 4%, 10% 7%
Food and non-Alcoholic Beverages Bread, flours and other cereals 4% 7%
Food and non-Alcoholic Beverages Pizza and quiche, other bakery products, breakfast cereals, other cereal products 10% 7%
Food and non-Alcoholic Beverages Meat and meat preparations 10% 7%
Food and non-Alcoholic Beverages Fresh, chilled or frozen fish. Other preserved or processed fish and seafood-based preparations 10% 7%
Food and non-Alcoholic Beverages Fresh, chilled or frozen seafood 10%, 22% 7%
Food and non-Alcoholic Beverages Milk and cheese 4% 7%
Food and non-Alcoholic Beverages Preserved milk, yoghurt, other milk products 10% 7%
Food and non-Alcoholic Beverages Eggs 10% 7%
Food and non-Alcoholic Beverages Butter, olive oil, other edible oils 4% 7%
Food and non-Alcoholic Beverages Other edible animal fats 10% 7%
Food and non-Alcoholic Beverages Fresh, chilled or frozen fruit 4% 7%
Food and non-Alcoholic Beverages Dried fruit and nuts 4%, 10% 7%
Food and non-Alcoholic Beverages Preserved fruit and fruit-based products 10%, 22% 7%
Food and non-Alcoholic Beverages Fresh, chilled or dried vegetables, other preserved or processed vegetables, crisps 4%, 10% 7%
Food and non-Alcoholic Beverages Frozen vegetables, potatoes and other tubers and products of tuber vegetables 4% 7%
Food and non-Alcoholic Beverages Sugar, jams, marmalades, honey, chocolate, confectionery products, edible ices and ice cream 10% 7%
Food and non-Alcoholic Beverages Artificial sugar substitutes 22% 20%
Food and non-Alcoholic Beverages Sauces, condiments, baby food, ready-made meals, other food products n.e.c. 10% 7%
Food and non-Alcoholic Beverages Salt, spices and culinary herbs 5%, 10%, 22% 7%
Food and non-Alcoholic Beverages Coffee and tea 10%, 22% 7%
Food and non-Alcoholic Beverages Cocoa and powdered chocolate 10% 7%
Food and non-Alcoholic Beverages Mineral waters, soft drinks, fruit and vegetable juices 22% 20%
Alcoholic Beverages and Tobacco Spirits and liqueurs 22% 20%
Alcoholic Beverages and Tobacco Tobacco 22% 20%
Clothing and Footwear Clothing and footwear 22% 20%
Housing, Water, Gas, Electricity and Other Fuels Actual rentals paid by tenants for primary and secondary residences 0%, 10% 0%, 20%
Housing, Water, Gas, Electricity and Other Fuels Garage rentals and other rentals paid by tenants 0%, 22% 0%, 20%
Housing, Water, Gas, Electricity and Other Fuels Imputed rentals of owner-occupiers and other imputed rentals 0% 0%
Housing, Water, Gas, Electricity and Other Fuels Materials for the maintenance and repair of the dwelling 22% 20%
Housing, Water, Gas, Electricity and Other Fuels Services for the maintenance and repair of the dwelling 10% 7%
Housing, Water, Gas, Electricity and Other Fuels Water supply 10% 7%
Housing, Water, Gas, Electricity and Other Fuels Refuse and sewage collection 0% 0%
Housing, Water, Gas, Electricity and Other Fuels Maintenance charges in multi-occupied buildings 0%, 10%, 22% 0%, 7%, 20%
Housing, Water, Gas, Electricity and Other Fuels Security services 22% 20%
Housing, Water, Gas, Electricity and Other Fuels Other services related to dwelling 10%, 22% 7%, 20%
Housing, Water, Gas, Electricity and Other Fuels Electricity 10% 7%
Housing, Water, Gas, Electricity and Other Fuels Natural gas through networks, liquefied hydrocarbons 10%, 22% 7%, 20%
Housing, Water, Gas, Electricity and Other Fuels Liquid fuels, solid fuels 22% 20%
Housing, Water, Gas, Electricity and Other Fuels Other energy for heating and cooling 10% 7%
Furnishings, Household Equipment and Routine Household Maintenance Furniture, furnishings, carpets and floor coverings 22% 20%
Furnishings, Household Equipment and Routine Household Maintenance Services of laying of fitted carpets and floor coverings 10% 7%
Furnishings, Household Equipment and Routine Household Maintenance Household textiles 22% 20%
Furnishings, Household Equipment and Routine Household Maintenance Major and small household appliances 22% 20%
Furnishings, Household Equipment and Routine Household Maintenance Glassware, tableware and household utensils 22% 20%
Furnishings, Household Equipment and Routine Household Maintenance Domestic services by paid staff 0% 0%
Furnishings, Household Equipment and Routine Household Maintenance Other goods and services for routine household maintenance 22% 20%
Health Pharmaceutical products 10%, 22% 7%, 20%
Health Therapeutic appliances and equipment 4% 7%
Health Repair of therapeutic appliances and equipment 22% 20%
Health Out-patient and hospital services 0% 0%
Transport New motor cars 4%, 22% 7%, 20%
Transport Second-hand motor cars 0%, 4%, 22% 0%, 7%, 20%
Transport Motor cycles and bicycles 22% 20%
Transport Spare parts and accessories for personal transport equipment 22% 20%
Transport Fuels and lubricants for personal transport equipment. Maintenance, repair and other services in respect of personal transport equipment 22% 20%
Transport Driving lessons, tests, licences and road worthiness tests 0%, 22% 0%, 20%
Transport Passenger transport by railway 0%, 10% 0%, 7%
Transport Passenger transport by road 0%, 10% 0%, 7%
Transport Passenger transport by air 0%, 10% 0%, 7%
Transport Passenger transport by sea and inland waterway 0%, 5%, 10% 0%, 7%
Transport Combined passenger transport 0%, 5%, 10% 0%, 7%
Transport Funicular, cable-car and chair-lift transport 10% 7%
Transport Other purchased transport services 22% 20%
Communication Postal services 0%, 22% 0%, 20%
Communication Telephone and telefax equipment 22% 20%
Communication Telephone and telefax services and other information transmission services 22% 20%
Recreation and Culture Equipment for the reception, recording and reproduction of sound and picture. Other major durables for recreation and culture 22% 20%
Recreation and Culture Games, toys and hobbies. Equipment for sport, camping and open-air recreation 22% 20%
Recreation and Culture Plants and flowers 10% 20%
Recreation and Culture Garden products. Pets and related products and services 22% 20%
Recreation and Culture Recreational and sporting services 10%, 22% 20%
Recreation and Culture Cinemas, theatres, concerts 10% 20%
Recreation and Culture Museums, libraries, zoological gardens 0% 0%
Recreation and Culture Television and radio licence fees, subscriptions 0%, 4%, 22% 0%, 7%, 20%
Recreation and Culture Hire of equipment and accessories for culture, photographic services, other cultural services 22% 20%
Recreation and Culture Games of chance 0% 0%
Recreation and Culture Books 4% 7%
Recreation and Culture Binding services and E-book downloads 22% 20%
Recreation and Culture Newspapers and periodicals 4% 7%
Recreation and Culture Miscellaneous printed matter. Stationery and drawing materials 22% 20%
Recreation and Culture Package domestic holidays 10%, 22% 20%
Recreation and Culture Package international holidays 0%, 22% 0%, 20%
Education Education 0% 0%
Restaurants and Hotels Restaurants, cafés and the like 10% 20%
Restaurants and Hotels Canteens 4% 7%
Restaurants and Hotels Accommodation services 10% 20%
Miscellaneous Goods and Services Hairdressing salons and personal grooming establishments. Appliances, articles and products for personal care. Personal effects n.e.c. 22% 20%
Miscellaneous Goods and Services Female sanitary towels and babies nappies 22% 7%
Miscellaneous Goods and Services Child care services 0% 0%
Miscellaneous Goods and Services Retirement homes for elderly persons and residences for disabled persons. Services to maintain people in their private homes 0%, 4%, 5%, 10%, 22% 0%, 7%, 20%
Miscellaneous Goods and Services Consuelling 22% 20%
Miscellaneous Goods and Services Insurance 0% 0%
Miscellaneous Goods and Services Other financial services n.e.c. 0%, 22% 0%, 20%
  1. Source: Authors elaboration.

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