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Taxpaying response of small firms to an increased probability of audit: some evidence from Italy

Author

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  • Carlo Fiorio
  • Stefano Iacus
  • Alessandro Santoro

Abstract

Income tax evasion by small rms has been seldom investigated mostly because of lack of data. In this paper we use a large data set produced by the Italian Revenue Agency for this project to analyse a recent policy to contrast business income tax evasion. Since 1998 Italy has adopted a method to audit small businesses (Studi di Settore), which de nes the probability of a tax audit based on presumptive and reported levels of sales. In 2007 a letter campaign was implemented by the Italian Revenue Agency aimed at reducing manipulation of reports by threatening that if the "anomaly" was repeated with the 2008 tax declaration, the probability of a thorough tax audit would have drastically increased. By using di erence in di erence with matching methods on a sample of about 50,000 treated firms and 95,000 controls, we find that the letter campaign had a positive and statistically signi cant average eff ect on treated firms. A cost-bene t analysis of the policy suggests that the letter campaign generated a net increase of revenues of about 140 million euros.

Suggested Citation

  • Carlo Fiorio & Stefano Iacus & Alessandro Santoro, 2013. "Taxpaying response of small firms to an increased probability of audit: some evidence from Italy," Working Papers 251, University of Milano-Bicocca, Department of Economics, revised Jul 2013.
    • Handle: RePEc:mib:wpaper:251
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    File URL: http://repec.dems.unimib.it/repec/pdf/mibwpaper251.pdf
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    References listed on IDEAS

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    Cited by:

    1. Bruno Chiarini & Simona Monteleone, 2016. "Discretionary policy, strategic complementarity and tax evasion: a strategic analysis of the Italian audit mechanism," Economia Politica: Journal of Analytical and Institutional Economics, Springer;Fondazione Edison, vol. 33(1), pages 99-117, April.
    2. Zhixin Dai & Fabio Galeotti & Marie Claire Villeval, 2017. "The efficiency of crackdowns: a lab-in-the-field experiment in public transportations," Theory and Decision, Springer, vol. 82(2), pages 249-271, February.
    3. Ferrara, Giancarlo & Bucci, Valeria & Campagna, Arianna, 2023. "Audit, presumptive taxation and efficiency: An integrated approach for tax compliance analysis," Economic Systems, Elsevier, vol. 47(3).
    4. ferrara, giancarlo & campagna, arianna & bucci, valeria & atella, vincenzo, 2021. "Presumptive taxation and firms’ efficiency: an integrated approach for tax compliance analysis," MPRA Paper 111516, University Library of Munich, Germany.
    5. Zhixin Dai & Fabio Galeotti & Marie Claire Villeval, 2017. "The efficiency of crackdowns. An experiment in public transportations," Post-Print halshs-01335686, HAL.

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    More about this item

    Keywords

    Business Taxation; Tax Compliance; Coarsened Exact Matching; Studi di Settore;
    All these keywords.

    JEL classification:

    • H26 - Public Economics - - Taxation, Subsidies, and Revenue - - - Tax Evasion and Avoidance
    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
    • C13 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Estimation: General

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