Analysis-Italy’s light touch on inheritance tax comes at a cost, economists say

Inherited wealth in Italy reached about €243 billion in 2024 (roughly 14% of GDP) while inheritance tax yields are negligible — around €1 billion a year with an average effective rate below 0.5% — meaning aligning to EU averages could raise roughly €6 billion. Economists argue higher estate taxes would improve social mobility and provide funding for education, childcare or lower labour taxes for low earners to boost domestic demand, but Prime Minister Giorgia Meloni’s government opposes such measures and has eased estate‑tax avoidance via lifetime gifts. The current regime, with generous €1m exemptions for close heirs and low rates (4%–8%), entrenches intergenerational privilege and a regressive tax burden, though defenders warn of capital flight while cross‑country evidence from France and Germany suggests limited macroeconomic risk.

Analysis

Inherited wealth in Italy reached about €243 billion in 2024, roughly 14% of GDP, while effective inheritance taxation is negligible—yielding roughly €1 billion a year and an average effective rate below 0.5%; aligning Italy with EU averages is estimated to raise almost €6 billion annually. Current rules exempt legacies up to €1 million for spouses and children and levy 4% above that for close heirs (up to 8% for other beneficiaries), which contrasts with France and Germany that collect €21 billion and about €9 billion respectively and use broader tax bands (5%–60% in France).

Prime Minister Giorgia Meloni’s government is politically opposed to raising inheritance taxes and has eased avoidance via lifetime gifting; historical precedents (Berlusconi’s 2001 abolition and later reintroduction) underline the political sensitivity and low public trust in state services that amplify resistance. Economists cited in the article argue that additional revenue could fund education, childcare, or lower labour taxes for low earners to boost domestic demand and social mobility, but political opposition makes such reforms unlikely in the near term.

From a market perspective the direct fiscal upside is modest relative to GDP but non-trivial for targeted social investment, implying a potential medium-term upside to domestic-demand sectors if reforms occur; however, the mixed sentiment and political headwinds mean the most likely near-term outcome is policy continuity, maintaining a structural constraint on redistribution and domestic consumption growth that investors should price into Italian-focused allocations.

Key Decisions for Investors

• Price a low probability of near-term inheritance-tax reform into Italian sovereign and consumer exposures and avoid assuming material fiscal revenue from such a policy change
• Monitor political signals, legislative proposals, and election-related rhetoric closely as triggers that would materially change the risk-reward for Italy-exposed assets
• Mitigate Italy-specific political/fiscal risk via diversification or targeted hedges and consider increasing exposure to domestic-demand beneficiaries only if credible legislative detail and revenue estimates emerge