Abstract

This article provides a preliminary assessment of the Law n. 126/2008, lowering taxes on overtime income in Italy. The tax reduction will positively affect workers with high labour market attachment and with relatively high marginal income tax rates, providing an incentive to work extra hours. Employment effects of the reform are expected to be limited, in particular in the long run. The tax reduction will have negligible redistributive effects, while it will lower the horizontal equity of the Italian Personal Income Tax. Given the procyclicality of overtime worked hours, the impact of business cycle on workers' disposable income will increase. Tax administration costs are expected to rise in order to limit the possibility to avoid taxes reducing the standard worked hours and increasing the overtime ones.