Progressive Fiscal Policies Might Tackle Italy's Growing Inequalities

IGIER VISITING STUDENT TANVI GOYAL REPORTS ON THE LATEST IGIER POLICY SEMINAR WITH EMMANUEL SAEZ

Italian economy experienced an increase in both the concentration of private wealth and its ratio to GDP, alongside a trend of increase in public debt. Prof. Emmanuel Saez (University of California, Berkeley), the keynote speaker of IGIER Policy Seminar on 17th March, argued in that in these circumstances progressive wealth taxation could render public debt sustainable and reduce inequality. The discussion was moderated by Prof. Nicola Pavoni (Bocconi) and offered alternatives and perspectives on the proposal, presented by Prof. Tito Boeri (Bocconi) and Vincenzo Visco (NENS).
 
Prof. Saez first presented the recent evidence by Acciari, Alvaredo, Morelli (2021), which shows, using inheritance tax data, an increase in wealth concentration in Italy. With the wealth of top 1% being 150% of GDP, according to Prof. Saez's calculation a 1% tax on wealth above 2 million Euros would raise 20 billion Euros, accounting for 1% of GDP. Next, the speaker discussed the optimality of a 'progressive' wealth tax. He showed that Italy's tax system is regressive above the 95th wealth percentile due to the regressive nature of consumption taxes and social security contributions. A progressive wealth tax would restore progressivity by allowing to go after the stock than the flow, hence enabling to tax capital gains which that escape income tax and inheritance tax until bequest. A progressive wealth tax, Prof. Saez argued, is also fair because property taxes are too heavy for the middle class.
 
Finally, Prof. Saez asked could a progressive wealth tax work? The wealth tax has often failed in the past due to implementation issues like: evasion using offshore accounts, avoidance by moving abroad, loopholes like exemption for owner-managers benefiting the ultra-rich, low exemption thresholds and reliance on self-assessment. Due to these implementation concerns, citing Bach-Bozio et al. (2022), Prof. Saez showed how billionaires have largely been exempt from the wealth and income tax in France. Their failures offer useful lessons, and actionable changes can indeed be made to have an effective wealth tax.
 
In his discussion, Prof. Tito Boeri noted that the wealth share of bottom 50% reducing from 11.7% to 3.5% is a bigger concern in the Italian context. The social mobility is another concern because probability of reaching top 10% wealth percentile from the bottom 10% is only around 4%. Prof. Boeri also stressed that governments should focus on the tax collection issues, specifically relating to real estate valuation not being at market price and low inheritance tax. He proposed that considering intergenerational inequality and social immobility the inheritance tax can be repackaged from being the 'death tax' to an 'opportunity provider' tax. Finally, Vincenzo Visco offered a political perspective on the welfare tax. He pointed out that wherein wealth tax is neutral on the incentive to work and take risks, the income tax reduces these incentives. This makes a progressive wealth tax attractive. He also noted, expanding on Prof. Tito Boeri's point on real estate valuation, that there are indeed special observatories constantly updating the real estate market prices which should be used for valuation.
 
In his concluding remarks, Prof. Saez made a note on the inheritance tax, stating that it may act too late in the game at the moment of inheritance, while the wealth tax tackles the issue now, which is especially relevant in terms of wealth and power accumulation by the ultra rich. With respect to real estate taxes, he iterated on the point that only at the top of the income distribution might people have liquidity to pay the tax, and not in the medium spectrum. Moreover, through the interactions between the speaker, discussants, and the active audience there were challenging and stimulating points raised over what the panacea to the current levels of wealth inequality should look like.
 

by Tanvi Goyal