Fiscal Residuum and Family Consumption: An Impact Analysis

If the policy maker reduces the local tax levy by an amount equal to the fiscal residuum, it generates benefits to the performance of the firms, owing to the greater cash flow, and to the patterns of spending (and saving) of the residents, owing to the greater disposable income. This study consider the benefits for residents, quantifying the residuum from 1996 to 2008, estimating the impact on regional consumption and on GDP. During the reporting period, the residuum never drops below 12 billion per year, with the peak of 20,6 billion in the 2007. In the same period, the tax burden on the income tax payers has been on average 41,8%, while without residuum it would declined to 32,9%. Finally, referring to a keynesian multiplier model and using values at constant prices (base year 2000), the impact on the Veneto Region can be estimated primarily in lower consumption: the cumulative gap comes to 61,4 billion euro (an average of 4,7 billion per year, with a maximum of 6,5 billion reached in 2007). Given the composition of expenditure of the residents, the most affected consumptions appears to be those related to housing, to transportation and the food. Applying the same model to the regional GDP, without residuum it could be higher by an annual average of 10,9 billion euro (the maximum is reached in 2007 with 14, billion).