A recent study has revealed that Italy’s tax system disproportionately benefits the wealthiest 7% of the population, allowing them to pay a lower effective tax rate than low and middle-income earners. This system has significant implications for inequality and the financial health of one of Europe’s most indebted nations.
In many advanced economies, the wealthiest 1-2% often pay a lower proportion of their income in taxes, aided by financial advisors and low tax rates on investments. However, in Italy, these disparities start at a much earlier point on the income scale, according to the research led by five economists, including former Treasury official Alessandro Santoro.
“There is evidence that regressivity in Italy is remarkable compared with similar economies and affects incomes above 76,000 euros ($80,000) with wealth of about 450,000 euros,” Santoro told Reuters. This situation could have major consequences for Italy’s broader economy.
Economists argue that raising taxes on higher earners could help reduce inequality in a country where poverty has been increasing for years and support efforts to tackle the euro zone’s second-largest national debt. Such changes might also create space to lower taxes for lower-income earners, boosting consumption and economic growth in Italy, which has one of the slowest-growing economies in the region.
A Treasury spokesperson defended the government’s stance against raising taxes and highlighted tax cuts for lower and middle-income earners in the 2025 budget.
Italy’s overall tax burden is relatively high, at 41.5% of GDP. However, it is unevenly distributed. The country imposes low taxes on certain property and financial assets—primary income sources for the wealthy—has favorable rates for the self-employed, and negligible inheritance tax.
Data from the European Commission indicates that low-wage workers in Italy face the highest tax and social security contribution deductions in the EU.
“We have chosen an extremist mix of tax rates,” said Marco Leonardi, an economics professor at Milan’s Statale University and a former aide to Prime Minister Giorgia Meloni’s predecessor, Mario Draghi.
Financial investments are taxed at rates from 12.5% to 26%, while rental income can be taxed at a flat rate of 21%, and primary homes are not taxed. Self-employed individuals, a key support base for Meloni’s right-wing government, pay a reduced 15% tax on income up to 85,000 euros, compared to the highest tax rate of 43% for salaried workers earning above 50,000 euros annually.
Fifty years ago, Italy’s top income tax rate for the highest earners was 72%. As a result, those earning between 29,000 and 75,000 euros annually—representing 21% of taxpayers—now contribute over 40% of income tax revenues, according to Treasury data. Meanwhile, inheritance tax raises only 1 billion euros per year, a stark contrast to France’s 18 billion, and Germany and Britain’s 9 billion each.
