The heterogeneous effects of labor informality on VAT revenues: Evidence on a developed country

Paolo Di Caro and Agnese Sacchi

Journal of Macroeconomics, 2020, vol. 63, issue C

Abstract: The value-added tax is spread in many countries primarily because it allows rising public revenues, but its revenue performance can be undermined in the presence of informality. We document the existence of heterogeneous effects of labor informality on VAT collection in a developed country such as Italy. By using novel regional administrative data on VAT revenues, we find that labor informality produces negative effects on total VAT collection, including VAT on production and consumption, and positive effects on VAT revenues from consumption only. We also find that the consequences of labor informality on VAT collection depend on the size of informality, by approximating an-inverted U-relation. As for Italy, we explain such heterogeneous effects with the presence of regional differences in labor market conditions. We also document that labor informality has heterogeneous effects on VAT collection when considering specific productive sectors, and the cyclical consequences of the Great Recession.

Keywords: VAT collection; Labor informality; Administrative data; Great Recession (search for similar items in EconPapers)
JEL-codes: E26 H26 O17 O40 (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0164070419301818
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:jmacro:v:63:y:2020:i:c:s0164070419301818

DOI: 10.1016/j.jmacro.2020.103190

Access Statistics for this article

Journal of Macroeconomics is currently edited by Douglas McMillin and Theodore Palivos

More articles in Journal of Macroeconomics from Elsevier
Bibliographic data for series maintained by Catherine Liu ().