Francesco Figari on From housewives to independent earners: can the tax system help Italian women to work?
In the last decade, interest in in-work benefits has grown in most European countries. In-work benefits are means-tested cash transfers given to individuals, through the tax system, conditional on their employment status. They are intended to enhance the incentives to accept work and redistribute resources to low income groups. In-work benefits might be one of the pillars of a redesigned tax-benefit system in Italy aiming at increasing the female labour market participation, among the lowest in Europe, and redistributing resources to the working poor. This paper explores the potential scope to enhance both the incentive and the redistributive effects of the Italian tax system. The potential introduction of a family based and an individual in-work benefit in Italy is simulated by using EUROMOD, the EU-wide taxbenefit microsimulation model. The proposed new benefits are financed through the contextual abolition of the existing tax credit targeted to inactive people. Taking into account any detail of the tax-benefit I apply a static structural discrete model of labour supply to analyse behavioural reactions of women in couples and lone mothers separately. The research confirms that the abolition of the existing tax credit for dependent person and the introduction of new family in-work benefits might lead to an increase of labour supply of women in couples of 3 percentage points and lone mothers of 4 percentage points. As expected, individual in-work benefits seem to be more efficient for women in couples which enhance their labour market participation by 6 percentage points. Most of the behavioural changes take places in the bottom part of the income distribution with clear redistributive effects that lead in a reduction in poverty rates of 2 percentage points for women in couples and of 5 percentage points for lone mothers.