News Analysis: Economists divided over impact of Italian gov't-proposed tax cut

Italian Prime Minister Matteo Renzi this week promised around 35 billion euros (39.2 billion U.S. dollars) in tax cuts in what is likely the Renzi government's most dramatic plan yet aimed at helping to spark new economic growth. But economists are split on whether the tax cut plan will have the desired impact.

The tax cuts in the plan are spread out between 2016 and 2018, and include a reduction of the much maligned tax on primary residences, lower taxes on corporate profits, lower sales taxes, and credits for research and development. The majority of the reductions will come in the first year of the proposal, and they will wrap up two years later, when parliamentary elections are scheduled to take place.

It is still a proposal -- the measure will be formally unveiled later this month and will be voted on by parliament near the end of the year -- but it gives clear insight into the Renzi government's economic priorities going forward.

"Once debate begins, we will likely see some small changes," political affairs analyst Gian Franco Gallo said in an interview. "There is debate, for example, about whether or not to continue tax incentives for new hires. But it is pretty clear the government wants to take a significant bite out of Italy's overall tax burden and to make the economy more competitive."

There is no clear consensus on how much of an impact the measures will have on the economy.

"It really depends on how they are implemented," Giampaolo Arachi, a professor of public finance with the University of Salento, told Xinhua. "We have to wait to see the real impact."

Angelo di Carlo, an author and economist with the University of Milan, agreed. "We are seeing the first early signals of what could be an economic recover for Italy," di Carlo said in an interview. "If a recovery is really taking place, lower taxes could give it momentum at just the right time. But if not, a tax package this size probably will not turn things around on its own."

According to Maria Rossi, co-director of the polling firm Opinioni, there may be a psychological impact from the announcement.

"Even if the real changes are small, or at least small at the start, working class Italians will be happy to know something like this is in the works," Rossi told Xinhua. "There is public support for a measure like this, and it could have an impact on consumer confidence."

Arachi made a similar point: "It's possible that the quantitative impact could be limited but that the message that the government is making structural changes to tax law could be important." Endit