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The deterrence effect of real-world operational tax audits on self-employed taxpayers: evidence from Italy

Author

Listed:
  • Gabriele Mazzolini

    (Italian Revenue Agency)

  • Laura Pagani

    (Università di Milano-Bicocca)

  • Alessandro Santoro

    (Università di Milano-Bicocca)

Abstract

We use a large administrative tax-returns panel dataset merged with a tax audit database to estimate the effect of real-world operational tax audits on subsequent tax behavior of a large sample of Italian self-employed taxpayers. Results from operational audits do not suffer from the fact that taxpayers are aware that they have been randomly selected for research purposes and, then, such audits are viewed as more of a signal about true audit rates by the taxpayer. Our empirical approach relies on fixed-effects difference-in-difference comparisons with an ex-ante matched sample of non-audited taxpayers. To address concerns about the endogenous selection into audit, we provide evidence for the common trends assumption. We find a positive and lasting effect of audits on subsequent reported income. However, in line with theoretical predictions, taxpayers do not increase tax compliance when the tax authority does not assess a positive additional income. Our results are robust to a variety of specifications and samples.

Suggested Citation

  • Gabriele Mazzolini & Laura Pagani & Alessandro Santoro, 2022. "The deterrence effect of real-world operational tax audits on self-employed taxpayers: evidence from Italy," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 29(4), pages 1014-1046, August.
    • Handle: RePEc:kap:itaxpf:v:29:y:2022:i:4:d:10.1007_s10797-021-09707-9
    DOI: 10.1007/s10797-021-09707-9
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    Cited by:

    1. Kasper, Matthias & Rablen, Matthew D., 2023. "Tax compliance after an audit: Higher or lower?," Journal of Economic Behavior & Organization, Elsevier, vol. 207(C), pages 157-171.

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    More about this item

    Keywords

    Tax compliance; Administrative panel data; Tax audits;
    All these keywords.

    JEL classification:

    • H26 - Public Economics - - Taxation, Subsidies, and Revenue - - - Tax Evasion and Avoidance
    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • C55 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Large Data Sets: Modeling and Analysis

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