Designing a Universal Income Support Mechanism for Italy: An Exploratory Tour

Italy still lacks a nationwide rationally designed mechanism of income support. In this paper, we explore the feasibility and the optimal features of a universal policy of minimum income in Italy. We use a microeconometric model and a social welfare methodology in order to evaluate various alternative mechanisms. We simulate the effects and the social welfare performance of 15 reforms resulting from three versions of five basic types of income support mechanism: guaranteed minimum income (GMI), unconditional basic income (UBI), wage subsidy (WS) and two mixed systems: GMI with WS and UBI with WS. As a welfare evaluation criterion, we adopt the Gini Social Welfare function. All the reforms are calibrated so as to preserve fiscal neutrality. The optimal policy turns out to be a version of UBI with WS, namely an unconditional transfer covering 37.5% of the Poverty Level coupled with a 10% WS, with a total average benefit amounting to about 70% of the Poverty Level.