Tax evasion, behavioral microsimulation models and flat-rate tax reforms. Analysis for Italy

Andrea Albarea (), Michele Bernasconi (), Anna Marenzi and Dino Rizzi
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Andrea Albarea: Department of Economics, Ca' Foscari University of Venice
Michele Bernasconi: Department of Economics, Ca' Foscari University of Venice

No 2021:26, Working Papers from Department of Economics, University of Venice "Ca' Foscari"

Abstract: It is sometimes argued that a flat-rate tax reform can reduce tax noncompliance. The argument is, however, inconsistent with the so-called Yitzhaki' s puzzle of the classical expected utility (EU) model. The latter predicts an increase, rather than a reduction, in tax evasion following a cut in the tax rates resulting from a flat-rate reform. We study the impact of a flat-rate tax in a microsimulation tax-benefit model of Italy which allows us to analyse various hypotheses of tax evasion behavior. In addition to the EU model, we analyse expected utility with rank dependent probabilities (EURDP) and the model of reference dependent (RD) preference, the most favourable to overturn Yitzhaki' s puzzle. Our simulations show that a flat-rate tax would barely reduce overall evasion in Italy in all models considered. Redistributive effects are in all cases large.

Keywords: Fiscal reforms; tax evasion; reference dependent preferences (search for similar items in EconPapers)
JEL-codes: H20 H26 H30 (search for similar items in EconPapers)
Pages: 35 pages
Date: 2021
New Economics Papers: this item is included in nep-acc, nep-cmp, nep-eur, nep-iue, nep-pbe, nep-pub and nep-upt
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Journal Article: Tax Evasion, Behavioral Microsimulation Models and Flat-Rate Tax Reforms: Analysis for Italy (2023)
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Persistent link: https://EconPapers.repec.org/RePEc:ven:wpaper:2021:26

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