A micro-macro approach for the evaluation of fiscal policies: The case of the Italian tax-benefit reform

• Published in: Economic modelling Vol. 135; p. 106689
• Main Authors: Alexandri, Eva, Figari, Francesco, Longo, Enrico, Suta, Cornelia-Madalina
• Format: Journal Article
• Language: English
• Published: Elsevier B.V 01.06.2024
• Subjects: E3ME; EUROMOD; Fiscal reform; Italy; Micro-macro simulation; Fiscal reform; E3ME; Micro-macro simulation; EUROMOD; H31; CH24; Italy; I38
• ISSN: 0264-9993; 1873-6122
• DOI: 10.1016/j.econmod.2024.106689

A comprehensive evaluation of fiscal policy reforms requires a methodology that simultaneously considers their aggregate impact on the economy as a whole as well as their distributional implications at the individual or household level. In this paper, we provide a new link between a fiscal microsimulation model and a macro-econometric model and we analyze the impact of the reform of the Italian tax-benefit system occurred in 2022. The reform is expected to have a first-round cost of about 15 billion euros due to the tax cut and the increase in child related benefits, with a reduction in inequality of around 0.5 percentage points of Gini index. The second-round effects confirm the reduction in inequality and indicate an initial self-financing effect of about 7%. Our estimates support the importance of integrating micro- and macroeconomic insights for a more accurate assessment of the impact of public policies. •We provide a new link of a microsimulation model with a Post-Keynesian macro-model.•We use the integrated model to evaluate the 2022 Italian tax-benefit reform.•First round effects highlight an inequality reduction and an efficiency improvement.•Second round effects confirm inequality reduction and show a self-financing effect.•In the medium term the equity-efficiency gain of the reform is reinforced.