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The tax evasion social multiplier: Evidence from Italy

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  • Galbiati, Roberto
  • Zanella, Giulio

Abstract

We estimate social externalities of tax evasion in a model where congestion of the auditing resources of local tax authorities generates a social multiplier. Identification is based on a contrast of the variance of tax evasion at different levels of aggregation. We use a unique data set that contains audits of about 80,000 small businesses and professionals in Italy and also provides an exact measure of reference groups in our model. We find a social multiplier of about 3, which means that the equilibrium response to a shock that induces an exogenous variation in mean concealed income is about 3 times the initial average response. This is a short-run effect that persists to the extent that auditing resources are not adjusted to internalize the congestion externality.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Public Economics.

Volume (Year): 96 (2012)
Issue (Month): 5 ()
Pages: 485-494

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Handle: RePEc:eee:pubeco:v:96:y:2012:i:5:p:485-494

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Web page: http://www.elsevier.com/locate/inca/505578

Related research

Keywords: Social interactions; Neighborhood effects; Social multiplier; Tax evasion; Tax compliance; Excess variance;

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References

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Citations

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Cited by:
  1. Amedeo Piolatto, 2014. "Itemised deductions: a device to reduce tax evasion," Working Papers 2014/9, Institut d'Economia de Barcelona (IEB).
  2. Filippin, Antonio & Fiorio, Carlo V. & Viviano, Eliana, 2013. "The effect of tax enforcement on tax morale," European Journal of Political Economy, Elsevier, vol. 32(C), pages 320-331.
  3. Athanasios O. Tagkalakis, 2013. "Audits and tax offenders: recent evidence from Greece," Working Papers 152, Bank of Greece.
  4. Vilen Lipatov, 2014. "Compliance Dynamics Generated by Social Interaction Rules," CESifo Working Paper Series 4767, CESifo Group Munich.
  5. B. Jahanshahi, 2014. "Separating Gender Composition Effect from Peer Effects in Education," Working Papers wp932, Dipartimento Scienze Economiche, Universita' di Bologna.
  6. Giovanni Immordino & Francesco Flaviano Russo, 2014. "Taxing Cash to Fight Collaborative Tax Evasion?," CSEF Working Papers 351, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy.
  7. Pietro Battiston & Simona Gamba, 2013. "Is Tax Compliance a Social Norm? A Field Experiment," Working Papers 249, University of Milano-Bicocca, Department of Economics, revised Jul 2013.
  8. Athanasios O. Tagkalakis, 2014. "The direct and indirect effects of audits on the tax revenue in Greece," Economics Bulletin, AccessEcon, vol. 34(2), pages 984-1001.

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