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The tax evasion social multiplier: Evidence from Italy

  • Galbiati, Roberto
  • Zanella, Giulio

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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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
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/505578

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