Income Inequality and Redistribution Policies in the New Era of Migration. An Analysis of the International Emerging Trends and the Italian Experience

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Income Inequality and Redistribution Policies in the

New Era of Migration. An Analysis of the International

Emerging Trends and the Italian Experience

Regional Responses to Forced Migration in the Mediterranean Friday, 15 July 2016

Income Inequality and Redistribution Policies in the

New Era of Migration. An Analysis of the International

Emerging Trends and the Italian Experience

Regional Responses to Forced Migration in the Mediterranean

Friday, 15 July 2016

IASFM 16: Rethinking Forced Migration and

Displacement: Theory, Policy, and Praxis

Adam Mickiewicz University, Poznan, Poland - July 12-15, 2016

Salvatore Villani

Assistant Professor in Public Economics University of Naples Federico II, Italy

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VILLANI – Income Inequality and Redistribution Policies in the New Era of Migration – Poznan, 2016

AIMS OF THE PAPER

This paper aims:

1) to address the issues of migration management and its socio-economic impact, attempting to demonstrate how A WISE GOVERNANCE OF

INTERNATIONAL AND INTERNAL MIGRATION, combined with A RISK-MANAGEMENT CULTURE, could represent a valid response to the EU’s

organizational myopia;

2) to clarify the reasons why IMMIGRATION, if properly managed, COULD BE

VIEWED AS A RESOURCE RATHER THAN A PROBLEM, and used as AN EFFICIENT TOOL OF INCOME REDISTRIBUTION to eradicate income

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AIMS OF THE PAPER

This paper aims:

3) to show that IMPROVEMENTS OF THE REDISTRIBUTIVE FUNCTION

OF TAX AND WELFARE NATIONAL SYSTEMS and AN INCREASE OF

THEIR RESILIENCE represents an essential precondition to eliminate

vulnerabilities of the individual European states’ socio-economic

systems which threatens the realization of all human rights;

4) to discuss whether and to what extent STRENGTHENING THE

RESILIENCE OF NATIONAL TAX AND WELFARE SYSTEMS can help

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TOPICS

1. The effects of migration on inequality: a brief review of the literature 2. Can immigration work as an effective tool of redistribution?

3. The international debate on the fiscal impact of immigration 4. The hypothesis on the equalising power of skilled immigration

5. Internal migration and inequality in Italian regions from 2004 to 2012 6. Tax and welfare systems resilience and resilience in human rights 7. Concluding remarks and policy indications

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THE FISCAL IMPACT OF IMMIGRATION

SOME RECENT STUDIES

o Rowthorn R. (2008), The ﬁscal impact of immigration on the advanced economies.

o Moreno Fuentes F.J., Bruquetas Callejo M. (2011), Immigration and the Welfare state in Spain. o Goldin I., Cameron G., Balarajan M. (2011), Exceptional People: How Migration Shaped Our

World and Will Deﬁne Our Future.

o Benvenuti V., Stuppini A. (2012), L’impatto ﬁscale dell’immigrazione nel 2010, “Diritto, immigrazione e cittadinanza”, 14(2), 62-72.

o Camarota S.A. (2013), The Fiscal and Economic Impact of Immigration on the United States.

o Chojnicki X. (2013), The Fiscal Impact of Immigration in France: A Generational Accounting

Approach, “The World Economy”, 36(8), 1065-1090.

o OECD (2013), The ﬁscal impact of immigration in OECD countries. o Vargas-Silva C. (2014), The Fiscal Impact of Immigration in the UK.

o Rowthorn R. (2014), Large-scale Immigration: Its economic and demographic consequences, CIVITAS, London.

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HIGH/LOW SKILLED MIGRATION AND ITS

EFFECT ON INCOME INEQUALITY

THE RELATIONSHIP BETWEEN MIGRATION AND INCOME INEQUALITY

IN THE DESTINATION COUNTRIES/AREAS

o Borjas G.J., Freeman R., Katz L. (1992), On The Labor Market Effects of Immigration

and Trade, in Borjas, Freeman (eds., 1992), 213-44: the growth of unskilled migration

may exacerbate the income gap between the native workers more educated and those less educated (drop out).

o Kahanec M., Zimmermann K.F. (2008), International Migration, Ethnicity and

Economic Inequality, Discussion Paper IZA DP No. 3450, April: immigration generates

an equalising effect, namely a smoothing gaps effect, especially when the levels of

education and professional experience of immigrants are very high.

o Peri G. (2014), Do immigrant workers depress the wages of native workers?, “IZA World of Labor”, 42, 1-10: Peri’s analysis confirms that most studies for industrialized countries have found, on average, no effect on the wages of native workers (the

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The Gini coefficient as a function of the share of labor force with upper secondary or higher education

The Gini coefficient as a function of the share of labor force with post-secondary or higher education

The share of labor force with upper secondary or higher education as a function of the share of foreigners in the labor force

The share of labor force with post-secondary or higher education as a function of the share of foreigners in the labor force

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IMMIGRATION AND INCOME INEQUALITY

IN THE AMERICAN STATES

Xu P., Garand J.C. and Zhu L. (Imported Inequality? Immigration and Income

Inequality in the American States, “State Politics & Policy Quarterly”, 2015,

1-25) explore the possibility that some type of immigrants may contribute more

to higher income inequality than other immigrants.

They have analysed the impact of immigration on income inequality by using pooled cross-sectional time-series data from the American states for the years 1996 to 2008, trying to evaluate the different degree of influence on income inequality exerted by three different types of immigrants: newly admitted LPRs, low-skilled immigrants, and high-skilled immigrants.

These scholars have found that the positive relationship between immigration and state income inequality is driven primarily by low-skilled immigrants (rather than high-skilled immigrants).

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MIGRATION: POSITIVE OR NEGATIVE EFFECTIVE

INSTRUMENT OF REDISTRIBUTION?

o Galbraith J.K. (1979), The Nature of Mass Poverty, Harvard University Press, Cambridge: «Migration is the oldest action against poverty. It selects those who most want help. It is good for the country to which they go; it helps break the equilibrium of poverty in the country from which they come. What is the perversity in the human soul that causes people to resist so obvious a good?»  Migration flows can work as an effective instrument

of redistribution:

o Piketty, T. (2013), Le capital au XXIe siècle, Paris: Edition du Seuil: «La

redistribution par l'immigration ne fait que repousser le problème un peu plus loin, mais ne dispense pas de mettre en place les régulations - État

social, impôt progressif sur le revenu, impôt progressif sur le capital - qui s'imposent. Il n'est d'ailleurs pas interdit de penser que l'immigration a d'autant plus de chances d'être bien acceptée par les populations les moins favorisées des pays riches que ces institutions font en sorte que les

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THE EQUALISING POWER OF

IMMIGRATION

THE EFFECTS OF IMMIGRATION ON INCOME INEQUALITY

Following the theories of Galbraith (1979), Kahanec and Zimmermann

(2008, 2009), and developing further my previous investigation on the

equalizing function of migration (Villani, 2015), this paper illustrates

how immigration can have positive redistributive effects on regional

income inequality; in particular, I found that a positive migration

balance may be able to reduce the value of Gini coefficient in those

regions which experience relevant immigration flows.

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THE ITALIAN CASE:

THE NEW INTERNAL MIGRATION

TRANSFER OF RESIDENCE AMONG ITALIAN MUNICIPALITIES BY REGION IN 2014

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THE ITALIAN CASE: THE NEW INTERNAL MIGRATION

TREND IN TRANSFERS OF RESIDENCE

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THE ITALIAN CASE:

THE NEW INTERNAL MIGRATION

IMMIGRATION AND EMIGRATION BY GENDER AND AGE IN 2014

Young adults and children mainly migrate toward the Center and the North of Italy

Notes: Values in thousands.

Source: ISTAT (2015).

MALES FEMALES

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THE EFFECTS OF INTERNAL MIGRATION

ON THE REGIONAL INCOME INEQUALITY

This analysis is structured as follows:

1. exploratory analysis of the variables used in the work;

2. identification and survey of the trends that these variables have

had in the time period considered;

3. development of a statistical regression model with panel data;

4. verification of the correct specification of the model through the

use of control variables;

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THE HYPOTHESIS BEING TESTED AND THE

VARIABLES OF THE MODEL

Following the theories of Galbraith (1979), Kahanec and Zimmermann (2008, 2009) set out in the preceding pages, this work attempts to verify whether

immigration has positive redistributive effects on regional income inequality;

in particular, it tests whether a positive migration balance reduces the value

of Gini coefficient in those regions which experience relevant immigration flows.

It focus on the following three variables: 1) the regional net migration rate;

2) the regional unemployment rate;

3) the Gini index, used to measure the degree of income inequality existing within individual regions.

These data were extracted from the database of ISTAT, the Italian Institute of Statistics.

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THE MODEL

PANEL DATA MODELS ESTIMATED: the first takes into consideration

the error term as correlated to the regressors (equation 1) and the

second assumes that the former element is not correlated to the

second ones (equation 2).

Fixed effect model:

Random effect model:

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, 1 , 1 , ,t i t i t i t i

Un

NMR

u

Gini





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

_





_



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ε

u

NMR

Un

Gini













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MIGRATION AND INCOME INEQUALITIES IN ITALY

Impact of MB and Unemployment on regional Gini coefficient

Dependent variable: Gini coefficient

Period 2004-2012 2004-2007 2008-2012

Independent variable

Unemployment 0.348***

(0.123) 0.390*** (0.052) 0.345***(0.260) Net Migration Rate _{ 1.923***}

(0.440)  1.223***(0.821)  2.332***(0.533)

Costant 24.660***

(0.164) 24.61***(0.569) 24.410***(0.280)

R-squared 0.5069 0.5813 0.4791

Discr/Kraay YES YES YES

Observation 180 80 100

The choice of the 2004-2012 period is not random. The paper aims to analyse the relationship between the abovementioned variables at the pre-crisis time and the changes which have been brought about in the post-crisis period.

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MIGRATION AND INCOME INEQUALITIES IN ITALY

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ITALY’S REGIONAL DIVIDE:

INCOME INEQUALITY

Percent distribution of households by region and by quintiles of income in 2014

Fo n te : R ap p o rt o S V IM EZ 2 0 1 5 s u ll’ ec o n o m ia d el M ez zo gi o rn o .

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IMMIGRATION POLICIES AND

ECONOMIC RESILIENCE

The Italian experience teaches us that:

 immigration should be considered a resource and used as a tool to

enhance “ability to recover” of a country;

 the low ability to exploitation of the “resource immigration” in

Southern Italy is a mirror of the difficulties of the Southern Economy;

 if we aim at promoting the economic growth and increasing the

general welfare of the people, THE MONITORING OF MIGRATION can

be important for us as much as THE MONITORING OF CHANGES IN

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EMIGRATION AND INCOME INEQUALITY

The Italian experience teaches us that:

 EMIGRATION can increase INCOME INEQUALITIES, thus hindering the

ECONOMIC GROWTH; THE MIGRATION OF HUMAN CAPITAL can have

a negative effect on THE WELFARE AND THE ECONOMIC GROWTH OF

COUNTRIES;

 such phenomenon cannot and should not be underrated, because it

can lead to an automatic increase of economic imbalances existing

within the country; underestimating this phenomenon means running

the risk to consolidate and accelerate the aforementioned PROCESS

OF HUMAN AND INDUSTRIAL DESERTIFICATION OF THE

MEZZOGIORNO, as well as its degree of economic underdevelopment

and dependence on the rest of the country.

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IMMIGRATION, REDISTRIBUTION AND

FISCAL FEDERALISM

Furthermore, the Italian experience teaches us that strategic changes in

THE STRUCTURE OF THE TAX SYSTEMS, associated to an efficient

management of THE WELFARE SYSTEMS and to an certain degree of

COORDINATED DECENTRALIZATION OF THE REDISTRIBUTIVE FUNCTION,

can be utilised to influence migration flows and, in this way, to bring each

region or country to its level of “efficient immigration” (v. Bucovetsky S.,

Efficient migration and redistribution, “Journal of Public Economics”, 87(11),

pages 2459-2474, October 2003) and to the reduction of internal

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COMBINING IMMIGRATION AND FINANCIAL POLICIES TO REDUCE POVERTY

AND INEQUALITY AND TO REALIZE THE HUMAN RIGHTS

IMMIGRATION

POLICY

INTEGRATION

POLICY

TAXATION

PUBLIC

EXPENDITURE

o Reduction of

INEQUALITY and

POVERTY

o Realization of the

HUMAN RIGHTS

Skill-based selection

Cultural and socio-economic integration

 Progressive fiscal policies  Unifiyng fiscal federalism  Resilience of the tax revenue

 Welfare resilience

 Efficiency in providing of public services  Infrastructures and facilities building  Resilience of capital expenditures

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THANK YOU FOR YOUR ATTENTION

CONTACTS:

Salvatore Villani

University of Naples Federico II

Via Rodinò, 22; 80138 – Naples (Italy)

Phone: +39 081 253 46 53; Fax: +39 081 253 46 53 E-mail: salvatore.villani@unina.it

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THE HENRY REVIEW, commissioned by the Rudd Government in

2008 and published in 2010, was the first “root and branch”

review of Australia’s tax and transfer system in more than 30

years. The last comprehensive reviews of Australia’s tax and

transfer system were completed in 1975. THE ASPREY REVIEW

examined the tax system and THE HENDERSON REVIEW

examined the social security system.

The Review was system wide in scope and long-term in vision,

presenting an ambitious blueprint that identifies a range of

reform directions. It was intentionally framed in terms of a

40-year vision aimed at identifying reform pathways for emerging

medium and long-term challenges facing Australia.

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THE HENRY TAX REVIEW

The report made 138SPECIFIC RECOMMENDATIONS, grouped under NINE BROAD THEMES.

1. Concentrating revenue raising on FOUR EFFICIENT TAX BASES: personal income, business

income, private consumption, and economic rents from natural resources and land. Other taxes may be retained if they serve a specific policy purpose such as discouraging smoking or traffic congestion. Taxes fitting into none of these categories should eventually be abolished.

2. Configuring TAXES AND TRANSFERS TO SUPPORT PRODUCTIVITY, PARTICIPATION AND GROWTH.

3. An equitable, transparent and simplified PERSONAL INCOME TAX: a much higher tax-free

threshold (around AUD 25,000), only two tax brackets, and a simplification of superannuation, deductions and offsets.

4. A fair, adequate, and work supportive TRANSFER SYSTEM.

5. Integrating CONSUMPTION TAX COMPLIANCE with business systems. 6. Efficient LAND AND RESOURCE TAXATION.

7. Completing RETIREMENT INCOME REFORM and securing AGED CARE.

8. Toward more affordable HOUSING: substantially increase rent assistance*, gradually move

to a uniform land tax and remove transfer taxes (stamp duty), and gradually move to a neutral treatment of rental and owner-occupied housing.

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THE HENRY TAX REVIEW

THE HENRY REVIEW identified FIVE TAX AND TRANSFER DESIGN PRINCIPLES

(Henry K.R. et al., 2010, Australia’s Future Tax System: Report to the

Treasurer, Part One, Overview, Commonwealth of Australia, Canberra):

1) EQUITY;

2) EFFICIENCY;

3) SIMPLICITY;

4) SUSTAINABILITY:

5) POLICY CONSISTENCY.

«In place of SIMPLICITY, SUSTAINABILITY and POLICY CONSISTENCY we

use the single concept of RESILIENCE to indicate a tax system able to

operate effectively in the face of social, technological and economic

challenges» (Stewart M., Moore A., Whiteford P. and Grafton R.Q., 2015).

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THE HENRY TAX REVIEW

«The TAX SYSTEM needs to be ADAPTABLE to changing economic

circumstances LOCALLY and GLOBALLY including changes in the way we do

things, technologies and employment, investment and savings patterns.

RESILIENCE is A DYNAMIC CONCEPT that aims to capture how the tax and

transfer system responds and adapts to address changes in the behaviour of

individuals in relation to their family, work, and other economic and social

opportunities or misfortunes.

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WHAT MAKES A RESILIENT TAX SYSTEM?

In this view, it is necessary TO ENHANCE THE REDISTRIBUTIVE FUNCTION

OF TAX SYSTEMS, bringing them to consider the unequal distribution of

“capabilities”, understood in the meaning specified by Sen (1985, 1997,

1999 and 2010), and not only the different availability of financial

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WHAT MAKES A RESILIENT TAX SYSTEM?

TAX SYSTEMS should be RESTRUCTURED, realizing a radical change of perspective, a

really Copernican change, which provides:

a) a new definition of “wealth”;

b) the definition of the “new” inequalities and poverties to identify most

effective tools for reducing them (Dovis and Saraceno , 2011);

c) the taxation of the individual not only related to the traditional economic

indicators (income, consumption and capital), but also connected to new

indices of economic capacity and ability-to-pay represented by positions and values (capabilities);

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LIMA DECLARATION ON

TAX JUSTICE AND HUMAN RIGHTS

«Tax policy is public policy, and so can no longer be treated as a matter of mere technical engineering or be left entirely to the often unaccountable discretion of government. Instead, we call on governments to cultivate transformative social and fiscal compacts, and empower citizen watchdog institutions that have the purpose of subjecting tax policy to the most rigorous standards of transparency, public participation, and meaningful accountability in line with internationally-recognized human rights principles. (…)

Existing human rights standards provide a normative justification for a capable and

wellresourced state. In order to comply with their obligations to protect and progressively realise economic and social rights, states must use and generate the maximum available resources (especially through sufficient and sustainable taxation) in equitable, non-discriminatory ways.»

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THANK YOU FOR YOUR ATTENTION

CONTACTS:

Salvatore Villani

University of Naples Federico II

Via Rodinò, 22; 80138 – Naples (Italy)

Phone: +39 081 253 46 53; Fax: +39 081 253 46 53 E-mail: salvatore.villani@unina.it