The "emersion" effect: an ex post and ex ante social program evaluation on labor tax evasion in Italy

Edoardo Di Porto, Leandro Elia and Cristina Tealdi

No 2/2013, Working Papers from IMT School for Advanced Studies Lucca

Abstract: We analyze how different policy interventions may incentive the transition of workers from the informal to the formal sector. We use Italian data over the period 1998-2008 to evaluate ex post whether the 2003 Italian labor market reform was able to reach the objective to reduce the share of shadow employment. Based on our empirical results, we develop an ex ante evaluation based on a search and matching model, á la Mortensen and Pissarides to determine the right combination of policy interventions which may be effective in generating a significant reduction in undeclared work together with an expansion of the formal sector. We find that in an economy where permanent and temporary contracts coexist, the combination of lower payroll taxes for permanent jobs and higher probability of being audited generates a compression of the informal sector, leaving unemployment unchanged. A similar result can be obtained through a reduction of the firing cost associated with permanent jobs, even though this causes temporary contracts to increase relatively more than permanent contracts.

Keywords: Labor tax evasion; temporary contracts; firing costs; search frictions; policy evaluation (search for similar items in EconPapers)
JEL-codes: H26 J38 J63 J64 (search for similar items in EconPapers)
Pages: 44 pages
Date: 2013-06, Revised 2013-06
New Economics Papers: this item is included in nep-acc, nep-dge, nep-eec, nep-eur, nep-iue, nep-lab and nep-pbe
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

Published in EIC working paper series

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http://eprints.imtlucca.it/1623/1/EIC_WP_2_2013.pdf First version, 2013

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