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Tax evasion and government size: evidence from Italian provinces

Author

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  • Elena D’Agostino

    (University of Messina)

  • Marco Alberto Benedetto

    (University of Calabria)

  • Giuseppe Sobbrio

    (University of Messina)

Abstract

We analyze the impact of government size, measured by total spending per capita, on tax evasion at the provincial level in Italy over the period 2001–2015. In order to solve endogeneity issues we rely on a system GMM and find that public expenditure negatively affects tax evasion, as taxpayers perceive the government is efficiently spending resources coming from the tax levy. Results are confirmed when we (1) consider expenditures related to long-term investments, namely capital spending per capita, and (2) directly test the impact of government efficiency on tax evasion. In addition, we show that the impact of public spending is heterogeneous across geographical areas: an increase in public expenditure leads to a downward shift in tax evasion only in the northern part of Italy, characterized by a relatively larger initial level of public goods provision.

Suggested Citation

  • Elena D’Agostino & Marco Alberto Benedetto & Giuseppe Sobbrio, 2021. "Tax evasion and government size: evidence from Italian provinces," Economia Politica: Journal of Analytical and Institutional Economics, Springer;Fondazione Edison, vol. 38(3), pages 1149-1187, October.
    • Handle: RePEc:spr:epolit:v:38:y:2021:i:3:d:10.1007_s40888-021-00227-7
    DOI: 10.1007/s40888-021-00227-7
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    Cited by:

    1. Alice Guerra & Brooke Harrington, 2023. "Regional variation in tax compliance and the role of culture," Economia Politica: Journal of Analytical and Institutional Economics, Springer;Fondazione Edison, vol. 40(1), pages 139-152, April.

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    More about this item

    Keywords

    Tax evasion; Public spending; Public goods; GMM; Efficiency;
    All these keywords.

    JEL classification:

    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models
    • C59 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Other
    • H20 - Public Economics - - Taxation, Subsidies, and Revenue - - - General
    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • H26 - Public Economics - - Taxation, Subsidies, and Revenue - - - Tax Evasion and Avoidance
    • H50 - Public Economics - - National Government Expenditures and Related Policies - - - General

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