ten points above the US level (EU Commission 2000; Cnossen 2002). Inescapable was the
conjecture that this had something to do with the different pattern of growth and employment
then observed in the two areas. The suggestion to remove tax on labor, particularly non
skilled labor, was obvious, it was first put forward by the authoritative voices of Drèze and
Malinvaud (1994) and thereafter repeatedly raised both by the OECD and also by the UE
Commission: it became mandatory for the Union Member States at the Lisbona’s Council of
2000.
What has really been achieved? From 1990 to 2000 the implicit rate was increased by
about two further points, equally distributed between social contributions and income tax
(Martines-Mongay 2000). As to social contributions just small cuts were introduced, by no
more than a few points, generally only at the lower end of the wage scale and not in all Euro-
pean Countries (Gandullia 2003 and EU Commission 2000).
Tax cuts of the income tax were similar (still Gandullia 2003 and EU Commission 2000),
but usually they were extended also to the top rate, sometimes in quite a reasonable way
(Germany and France for example), in other cases they were planned by a provocative heavy
amount (Italy). The burden for the (most dense) central income classes kept usually relatively
unchanged. The total redistributive12 effect thus has not generally been particularly relevant.
The enlargement of the no-tax area was certainly welcome, mostly as much as producing
higher equity, incentives on the labor supply being instead so minute as to be in fact uncertain
(see Gandullia 2003 and next paragraph). Unfortunately the price paid for the prevailing way
adopted to put into operation this cut13 was a large increase of marginal rates over the no-tax
area. To (partially) correct this effect new decreasing deductions had to be introduced, going
further to complicate a tax structure that any committed country would seek to simplify. Fur-
thermore the no-tax area should have been enlarged up to a threshold able to cover the equiva-
lent household level of poverty, what has rarely been achieved especially as more numerous
was the households, i.e. by adopting a poor equivalence scale.
The reduction of top rates, very difficult to explain on the grounds of efficiency (the mo-
bility of the highly skilled and their tax “dissatisfaction” have been alleged) is not easy to be
12 Measured as usually by the difference between the Gini’s index of pre- and post- tax incomes.
13 Though an enlargement of deduction at the bottom scale, combined with reducing and flattening the rates.
With respect to a more graduated rates schedule, this technique has the political advantage of an apparent greater
visibility, but it implies the (not easy to be perceived) distortion in the equity and efficiency mentioned in the
text. Then we are in front of a school case of lacking fairness in tax laws (see below, par. 4.2).