Why do underground reducing policies often fail their scope? Some answers from the Italian experience
Several 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.
(This abstract was borrowed from another version of this item.)
|Date of creation:||Aug 2008|
|Contact details of provider:|| Postal: via Medina 40, 80133 I - Napoli|
Web page: http://economia.uniparthenope.it/ise/sito/index.htm
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Herman B. Leonard & Richard J. Zeckhauser, 1987.
"Amnesty, Enforcement, and Tax Policy,"
NBER Chapters,in: Tax Policy and the Economy, Volume 1, pages 55-86
National Bureau of Economic Research, Inc.
- Herman B. Leonard & Richard J. Zeckhauser, 1986. "Amnesty, Enforcement and Tax Policy," NBER Working Papers 2096, National Bureau of Economic Research, Inc.
- Eduardo Engel & James R. Hines Jr., 1998. "Understanding Tax Evasion Dynamics," Documentos de Trabajo 47, Centro de Economía Aplicada, Universidad de Chile.
- Eduardo Engel & James Hines, 2000. "Understanding Tax Evasion Dynamics," Econometric Society World Congress 2000 Contributed Papers 1117, Econometric Society.
- Eduardo M.R.A. Engel & James R. Hines, Jr., 1999. "Understanding Tax Evasion Dynamics," NBER Working Papers 6903, National Bureau of Economic Research, Inc.
- Franzoni, Luigi Alberto, 1996. "Punishment and Grace: On the Economics of Tax Amnesties," Public Finance = Finances publiques, , vol. 51(3), pages 353-368.
- Franzoni, Luigi Alberto, 2000. "Amnesties, Settlements and Optimal Tax Enforcement," Economica, London School of Economics and Political Science, vol. 67(266), pages 153-176, May.
- Francesco Busato & Bruno Chiarini, 2004. "Market and underground activities in a two-sector dynamic equilibrium model," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 23(4), pages 831-861, May.
- Snow, Arthur & Warren, Ronald Jr., 2005. "Tax evasion under random audits with uncertain detection," Economics Letters, Elsevier, vol. 88(1), pages 97-100, July.
- Allingham, Michael G. & Sandmo, Agnar, 1972. "Income tax evasion: a theoretical analysis," Journal of Public Economics, Elsevier, vol. 1(3-4), pages 323-338, November.
- Dominik H. Enste & Friedrich Schneider, 2000. "Shadow Economies: Size, Causes, and Consequences," Journal of Economic Literature, American Economic Association, vol. 38(1), pages 77-114, March. Full references (including those not matched with items on IDEAS)