Do Small Businesses Respond to an Increase in the Probability of a Tax Audit? Evidence from a Policy Reform in Italy
This paper uses a panel of administrative data concerning 71,000 Italian small businesses observed in tax years 2005-2008. The aim of the paper is to evaluate the impact of a reform of audit rules implemented in 2006. The reform repealed a special audit exemption previously granted to businesses which adopted a stringent accounting standard. It is shown that the reform increased the level of economic activity, as measured by the value of inventory, for the generality of businesses involved. However, an increase in profits and turnover was reported only by the subset of businesses which were more likely to perceive it as an increase in the probability of an audit. This result is in line with the predictions of the Allingham-Sandmo model and it casts some doubts on the possibility to reduce evasion by limiting the opportunities of manipulating accounting books.
|Date of creation:||Sep 2015|
|Date of revision:||Sep 2015|
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- Dina Pomeranz, 2013. "No Taxation without Information: Deterrence and Self-Enforcement in the Value Added Tax," NBER Working Papers 19199, National Bureau of Economic Research, Inc.
- Joel Slemrod, 2007. "Cheating Ourselves: The Economics of Tax Evasion," Journal of Economic Perspectives, American Economic Association, vol. 21(1), pages 25-48, Winter.
- Hanlon, Michelle & Heitzman, Shane, 2010. "A review of tax research," Journal of Accounting and Economics, Elsevier, vol. 50(2-3), pages 127-178, December.
- Henrik Jacobsen Kleven & Martin B. Knudsen & Claus Thustrup Kreiner & Søren Pedersen & Emmanuel Saez, 2011. "Unwilling or Unable to Cheat? Evidence From a Tax Audit Experiment in Denmark," Econometrica, Econometric Society, vol. 79(3), pages 651-692, 05.
- Sandmo, Agnar, 2005. "The Theory of Tax Evasion: A Retrospective View," National Tax Journal, National Tax Association, vol. 58(4), pages 643-663, December. Full references (including those not matched with items on IDEAS)
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