Intra-generational distribution across families: what do generational accounts tell us?. Welfare, Intergenerational Distribution and Households, ENEPRI «Occasional Paper», n. 2
In recent years, the Italian debate on fiscal and social policies toward families has focused on the issue of dependents for two important reasons. The first one is related to the sharp and persistent decline of the fertility rate. Fertility decline is partly responsible for the increase in the old-age dependency ratio. This, in turn, causes a significant deterioration of the public finance outlook for the next decades. As a consequence, the highly questionable issue about the desirability and effectiveness of demographic policies is surfacing again in the political debate.
The second reason is related to poverty, as the likelihood of belonging to a poor family significantly increases with the number of dependents. According to recent estimates by an adhoc Commission, in year 2000 the relative poverty rate amounts to 12.3% among all Italian families. The ratio increases to 15.1% if there is at least one dependent aged less than 18 and further to 25.8% if the family with young dependents lives in the Mezzogiorno”. The last two rates increase respectively to 25.5% (nationwide) and 33.7% (Mezzogiorno) for families with three or more children.
As for the demographic issue, Italy experiences one of the lowest fertility rates in the world. Total fertility is below replacement since the late 1970s and reached its lowest value in 1995. Currently, Italy is second to Spain (1.22 and 1.15, respectively). Completed cohort fertility rates show a steady decline from 2.1 for women born in 1944 to 1.6 for the 1963 cohort. At the same time, life expectancy at birth has increased by 22 years over the last 60 years. As one would expect, net migration flows have reversed their direction since the early 1970s, from net emigration to net immigration.
The dreary demographic scenario, summarised by steady population decline and old-age dependency ratio increase, and the persistence of poverty among families with dependents has stimulated a policy debate on the desirability of an increase of social protection of households with young dependents.
The Italian welfare system is a mixture of the most recent approach based on universal programmes and the legacy of some of the old categorical schemes based on profession. As for families with dependents, the current system is mainly based on the public provision of health care and education, the role of cash transfers and tax allowance being minor. Public transfers are supported by a rather generous regula tion in favour of employed mothers. In the most recent years, the benefits have been gradually extended to fathers. A different approach is sometimes advocated, proposing the full income tax deductability of the expenses incurred by families in raising children. The debate reflects the apparently never-ending struggle between selectivity versus universality, on one hand, and between cash transfers versus merit goods on the other.
The following work is part of a larger research project aimed at evaluating the financial effects on family incomes of the current set of public tax and transfer programmes. By estimating the net taxes aid/received by different families, the research aims at contributing to the analysis of any possible loophole in the social security net.
In order to derive a concise measure of the financial effect of the various public programmes, the conventional generational accounting methodology (henceforth GA) will be applied to Italian families. The objective is to evaluate how public finances redistribute resources within generations when families are taken as the tax units. As a first approximation, only income effects will be estimated, as the model does not allow for any feedback effect (or substitution effect) from the existing policy instruments to individual behaviour. It will be discussed whether adding this intra-generational dimension modifies the results of traditional GA and its implications for the welfare systems