Political cycle and reported labour incomes in Italy: Quasi-experimental evidence on tax evasion

Michele Raitano and Roberto Fantozzi

European Journal of Political Economy, 2015, vol. 39, issue C, 269-280

Abstract: Tax evasion is a complex phenomenon affected by many factors and shaped by policymakers' and citizens' behaviours. Distinct claims about the acceptability of tax evasion between centre-right and centre-left coalitions have clearly emerged in Italy in the last decades. According to the ruling coalition, these different attitudes could have influenced tax compliance, affecting reported incomes of the self-employed, who have much more room to engage in tax avoidance or evasion strategies than employees. Using a longitudinal administrative dataset recording the entire working life of the sampled individuals, we focus on the period 1996–2005 (the only period when a complete bipartisan political cycle took place in Italy) and, following a difference in differences design and carrying out fixed effects estimates, we test whether self-employed earnings, compared to employees earnings, significantly changed after the change in the ruling coalition. We find a clear reduction in self-employed reported earnings when the centre-right coalition ruled."Il prelievo fiscale corretto si aggira intorno a un terzo del reddito, se invece le tasse sono tra il 50 e 60% è troppo e così è giustificato mettere in atto l'elusione o l'evasione"."The correct tax burden is about one third of the income; it is too much if the tax burden is approximately 50 or 60%, thus it is justified to resort to tax avoidance or evasion."Silvio Berlusconi, speech during the electoral campaign, April 2008.

Keywords: Tax evasion; Tax avoidance; Political cycle; Italy; Reported earnings; Self-employed (search for similar items in EconPapers)
JEL-codes: D31 H26 J31 (search for similar items in EconPapers)
Date: 2015
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:poleco:v:39:y:2015:i:c:p:269-280

DOI: 10.1016/j.ejpoleco.2015.07.001

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