Italy’s Populist Government May Not Bring Doom
A proposed flat tax could work. It did for Eastern European nationalists.
His Five Star Movement will be half of the governing coalition.
Photographer: Elisabetta A. Villa/Getty Images
The economic policy proposals of Italy’s populist coalition have spooked the markets, which have driven up government debt yields. And yet the two coalition partners, League and the Five Star Movement, may be on to something with a proposal for a two-tier flat tax.
Today, Italy has five income tax brackets with rates ranging from 23 percent to 43 percent. The coalition proposes to “flatten” them to two, with rates of 15 percent and 20 percent. On paper, the change threatens the government with a big revenue loss. Yet, if the experience of Russia and Eastern European countries is anything to go by, Italy could end up collecting more taxes, despite the obstacle of the country’s long history of spotty compliance and enforcement.