Estimating the Elasticity of Turnover from Bunching: Preferential Tax Regimes for Solo Self-employed in Italy

Francesco Alosa

Working Papers from Dipartimento Scienze Economiche, Universita' di Bologna

Abstract: Turnover is a key indicator of economic activity, but we know little about how much entrepreneurs adjust it as a response to taxation. This is because business taxation is usually based on profits, rather than turnover. This paper exploits the notch created by the eligibility cut-off of the preferential (turnover) tax regime for solo self-employed in Italy to study turnover responses to taxation. I find that solo self-employed bunch below the turnover threshold to be eligible for the preferential scheme. Effects are different in different sectors, with professionals and business intermediaries showing the largest responses. Then, I estimate the turnover tax elasticity by focusing on the (last) marginal buncher. To do so, I adapt the models of Kleven and Waseem (2013) and Harju et al. (2019) to derive a modified indifference condition that fits the institutional set-up. The baseline estimate for the turnover tax elasticity is 0.072.

JEL-codes: H24 H25 H26 (search for similar items in EconPapers)
Date: 2023-03
New Economics Papers: this item is included in nep-ent, nep-pbe and nep-pub
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:bol:bodewp:wp1186

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