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Social Mobility in Italy: The Relevance of Taxation in Promoting Intra-generational and Inter-generational Equality

Social mobility across generations is one of the fundamental characteristics of a society. The possibility to improve one’s own life condition constitutes a strong incentive to the development and improvement of abilities, innovations, and effort to work, from which is not only the single individual that benefits from this but the whole collectivity. Moreover, intergenerational mobility constitutes a crucial element in terms of equality (Cannari and D’Alessio 2018).  In postindustrial societies, inequalities seem to be increasing, especially in some countries, including Italy.

The Gini coefficient is a statistical measure often used to tackle economic inequality, measuring income distribution or wealth distribution among a population. The coefficient ranges from 0 to 1, with 0 representing perfect equality and 1 presenting perfect inequality. The Gini coefficient on the distribution of net wealth in Italy has increased from 0.59 in 1991 to 0,64 in 2016.

The average wealth in Italy, which amounted to €143,000 in 2016, has always been one the highest in the world. This is due to the spread of house property, to the fact that historically Italian people have a very low level of private debt and an aptitude to savings. The difference with other countries is even higher if we compare the link between personal net worth and the GDP per person: in Italy the rate is 1:7, meaning that for every euro earned there are 7 euros of accumulated wealth, while the same rate is 1:6 in both France and UK, 1:5 in Germany and 1:4 in the US (Forum delle Diseguaglianze 2019).

However, wealth is more and more concentrated. The inequalities are among social classes, with wealth inequality being much greater than income inequality. In 2016 the average Italian wealth has increased by 15% from 2007, while the wealth of the 10 richest people, according to the Rich List published every year by Forbes, has increased by 83 percent from 2007 to 2018. Moreover, inequalities are also inter-generational: the eldest have earned while people under 40 have lost wealth.

In the same decades in which the economic inequalities were increasing, a vast majority of the rich world have started to reduce taxes on both bequeath and donations within the family, and despite the succession taxes still exist, in Italy, the taxation on bequeathing has reached one of the lowest levels (OECD 2018). The taxes on succession were abolished completely by the Italian Government in 2001 and in 2006 they have been re-introduced in a minimum form. The actual maximum percentage of taxation on bequeathing in Italy is 4%, which is applicable only on amounts of over 1 million euros. In Spain, the OCSE average is 15%, is from €16,000, with progressive taxation from 7 to 34%, in France from €100,000, with progressive taxation from 5 to 45%, in the UK form 475.000 £ with a fixed 40% tax, and in Germany is from €475,000  with progressive taxation that goes from 7 to 30% (OECD 2018).

The tax revenue from bequeathing makes up only 0.05 of the Italian GDP, which amounts to €820 million.  By comparison, Spain obtains €2.7 billion (0.22% of the Spanish GDP) whereas in France the tax revenues amount to €14.3 billion, which accounts for 0.61% of the French GDP (OCPI 2020).

Obviously, increasing the taxes on bequeathing would not be the only solution to improve economic equality among a population if it is not accompanied by other policies such as free access to education. This is also demonstrated by the fact that countries such as the US and UK who have a high level of taxation on bequeath have a Gini coefficient similar to the Italian one. This might be due to the fact that in both countries access to education is not free and it is way more expensive than Italy and other Western countries.

However, increasing taxes on bequeath might help to redistribute wealth between people, way more than the tax on income, and give the opportunity to the Government to invest money in the welfare system and even lowering the taxes on income for the poorer social classes.

In recent research in 2016, Banca d’Italia made a clamorous discovery: in the survey, the researchers have collected data from the tax-payers records of Florence in 1427 and those of 2011. The result was that, in 6 centuries, wealth has remained among the same families. Three among the five richest contributors in 2011 belong to the richest families that already in the 15th century they were among the 7% richest population per income, and in 15% share of the richest population for the net worth. Vice versa, the poorest people in 2011 have the same surnames as those in 1427 (Barone and Mocetti 2016).

The fact that according to the Gini index the economic inequality is increasing even more in recent decades has a consequence: family wealth is more and more important and plays a huge role in shaping the future of young generations, even more than what happened in the past. ISTAT in 2012 has demonstrated that one-third of those born between 1970 and 1984 had their first job related to a social class lower than those of their parents, and fewer than 1 out of 6 of them managed to improve their positions (Istat 2012).

This means that the inter-generational social mobility has decreased, leading to two main consequences: the first one is that young people are on average poorer than their parents and grandparents, and the second one is that what their parents and grandparents leave to them is more and more important.

The link between the social position of the parents and those of the sons is manifested when the parents influence some characteristics of their sons, from which depend on their future income prospective. Some of these characteristics include motivation and preferences, such as the preference to pursue academic studies, state of health, both level and quality education, cognitive abilities and extra-curriculum competences, non-cognitive abilities, the economic capital to pursue independent economic activities or pursue those of the family, and social connections in which a person is located (Raitano 2018).

The social status of the parents will influence that of their sons: the main channel through which intergenerational inequality is transmitted is education (Cannari and D’Alessio 2018). The sons of wealthy families are more likely to have higher educational degrees both due to preferences to pursue academic studies and also due to the economic possibilities to study for a longer period of time and also in a higher level of quality (Raitano 2018).

Taxation on secession cannot be the only solution to tackle economic inequalities, however, donations and bequeath allow economic inequalities to crystallizers over time and also grow, and this is why the OCSE has reached the conclusion that taxes on the bequeath are necessary to fight the persistence of wealth gap between generations. The British economist Anthony Atkinson elaborated in his last book 15 proposals to tackle inequality. One of these is the taxation on bequeathing and donations in a progressive way, another one, even more radical, is to give a sort of citizen bequeath to all people entering their adult life (Atkinson 2014).

References

  • Atkinson, Anthony B. 2014. “Inequality: What Can Be Done?” Harvard University Press.
  • Barone, Guglielmo, and Sauro Mocetti. 2016. “Intergenerational Mobility in the Very Long Run: Florence 1427-2011.”
  • “Social Mobility”. Britannica. Consulted on the 15th of May
  • Cannari, Luigi, and Giovanni D’Alessio. 2018. “Istruzione, reddito e ricchezza: La persistenza tra generazioni in Italia.” Questioni Di Economia e Finanza.
  • Forum delle Diseguaglianze. 2019. “Un passaggio generazionale più giusto”
  • Istat. 2012. Annuale 2012.
  • OECD. 2018. The Role and Design of Net Wealth Taxes in the OECD. OECD Tax Policy Studies.
  • Raitano, Michele. 2018. “La trasmissione intergenerazionale della diseguaglianza in Italia : Dimensione e meccanismi,” 1–4.
  • Frottola, Edoardo, and Galli, Giampaolo. 2020. “I pro e i contro dell’imposta su sucessioni e donazioni”. Osservatorio Conti Pubblici Italiani
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