Why do underground reducing policies often fail their scope? Some answers from the Italian experience
AbstractSeveral European countries, facing a sizeable underground economy, often adopt underground reducing policies mainly based on incentives in the tax-benefit system. Since empirical evidence manifests a substantial failure of such policies, we construct a simple model to indicate the crucial aspects of this failure. To this end we consider a tax-evading firm, allocating work in the official and underground sector, where it is not taxed. With a view to reducing underground employment, the government may decide to launch an amnesty for past social security non-compliance, while providing fiscal incentives for new hiring in order to encourage a process of worker regularization. Allowing for endogenous enforcement, we find that the reputation of policy-makers in combating tax evasion proves crucial in determining the success of such a policy. Copyright 2009 Blackwell Publishing Ltd.
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Bibliographic InfoPaper provided by D.E.S. (Department of Economic Studies), University of Naples "Parthenope", Italy in its series Working Papers with number 8_2008.
Length: 19 pages
Date of creation: Aug 2008
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Irregular labour input; enforcement; Fiscal Authority efficiency; regularization policy; incentives in the firm’s tax structure;
Other versions of this item:
- Bruno Chiarini & Marco Di Domizio & Elisabetta Marzano, 2009. "Why Do Underground Reducing Policies Often Fail Their Scope? Some Answers From The Italian Experience," Economics and Politics, Wiley Blackwell, vol. 21(2), pages 308-318, 07.
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