The Impact of Italy’s 2019 “Decreto Cresita” Tax Incentive on Regional Migration Trends

Abstract

This work evaluates the impact of Italy’s “Decreto Crescita” tax incentive on migration inflows to the country. The main focus is to test whether the incentive increased overall working-age migration to Italy and whether the stronger incentives applied to the South led to a relative increase in migration to the treated regions. Using a diff-in-diff and event-study model framework, the results show that the policy led to a statistically significant increase in working-age arrivals. Once 2020 is removed to account for the COVID-19 shocks, the estimates suggest an increase of 330–350 additional working-age migrants per region-year. However, there is no evidence of the policy successfully changing the amount of migrants choosing to relocate in the South instead of the North. If anything, estimates suggest a non statistically significant decline. Further analysis of heterogeneous treatment effects shows that individuals largely respond rationally to larger and longer lasting tax exemptions, especially in the North. However, this pattern does not hold in the South, suggesting that the weaker underlying economic and labor market conditions limit the effectiveness of the stronger baseline incentives. The results suggest that tax incentives can drive overall migration; however, in Italy’s case, they are insufficient to overcome the pre-existing structural disparities between the North and South.