An Econometric Analysis of the Employment and Revenue Effects of the Treu Reform in the Period 1997-2001

An employment package (EP), reducing the social security taxes (SC) and increasing labour flexibility, was introduced in Italy by the centre-left Government in 1997. We show econometrically that EP had positive effect also on the SC revenue. Using time series techniques, with data 1980-1996, we estimate a model of labour market implicitly based on the old SC regime and assess the hypothetical level of employment without EP for 1997-2001. We, thus, determine the difference between the actual SC-revenues and SC-revenues without EP. This difference results positive and increasing through time, showing a peculiar Laffer effect.