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The Social Multiplier of Tax Evasion: Evidence from Italian Audit Data

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  • Roberto Galbiati

    ()

  • Giulio Zanella

    ()

Abstract

We investigate the role of individual interdependencies in tax evasion, arising from congestion on the auditing resources available to local tax authorities. Identification exploits a novel method based on comparison of the variance of individual behavior — concealed income in this case — at different levels of aggregation, within different subpopulations (Graham, 2008). This method allows us to mitigate some of the most severe problems that surround identification of neighbourhood effects, at the cost of identifying restrictions that arise naturally from our model. We employ a unique dataset of tax audits to about 75,000 self-employed individuals in Italy. Surprisingly, this sample is not statistically different from a random sample of taxpayers. We find a social multiplier of about 3, meaning that the equilibrium response to a shock that induces an exogenous variation in mean concealed income — such as tougher or looser tax enforcement — is about three times the initial average response

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Bibliographic Info

Paper provided by Department of Economics, University of Siena in its series Department of Economics University of Siena with number 539.

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Date of creation: Aug 2008
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Handle: RePEc:usi:wpaper:539

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Keywords: social interactions; social multiplier; tax evasion; tax compliance; excess variance;

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References

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  1. Durlauf,S.N., 2003. "Neighborhood effects," Working papers 17, Wisconsin Madison - Social Systems.
  2. Bernard Fortin & Guy Lacroix & Marie-Claire Villeval, 2004. "Tax Evasion and Social Interactions," Post-Print halshs-00175016, HAL.
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  16. Manski, Charles F, 1993. "Identification of Endogenous Social Effects: The Reflection Problem," Review of Economic Studies, Wiley Blackwell, vol. 60(3), pages 531-42, July.
  17. Joel Slemrod, 2007. "Cheating Ourselves: The Economics of Tax Evasion," Journal of Economic Perspectives, American Economic Association, vol. 21(1), pages 25-48, Winter.
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Cited by:
  1. Gerlinde Fellner & Rupert Sausgruber & Christian Traxler, 2009. "Testing Enforcement Strategies in the Field: Legal Threat, Moral Appeal and Social Information," CESifo Working Paper Series 2787, CESifo Group Munich.

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