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

Abstract

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.