Industrial structure and evasion dynamics, is there any link?

Raffaella Coppier, Elisabetta Michetti and Luisa Scaccia

Metroeconomica, 2022, vol. 73, issue 4, 960-986

Abstract: We propose a model to describe the link between industrial structure and evasion dynamics in a heterogeneous setting, in which the monitoring efforts put in place by the State to fight evasion of firms depend on the market share of each firm. More precisely, while the convenience to evade taxes is determined as a Nash solution of an incomplete information game, a differentiated monitoring activity related to market concentration represents the original contribution of this work w.r.t. previous studies on the topic. As empirical evidence shows, high dimensional firms are more likely to be monitored, hence, when dynamics are considered, evasion and industrial structure evolution are strictly related. In fact, by combining analytical findings and simulation results, our work shows that: (1) firms with a sufficiently large market share, that is, larger than a certain dimensional threshold, comply with fiscal rules, thus confirming empirical evidence; (2) this dimensional threshold changes with the competition level between firms in a nonlinear way; (3) evasion affects the market structure, so that markets with high (low) competition tend to increase (decrease) their concentration over time; (4) evasion is affected by market structure and is minimum in moderately concentrated markets.

Date: 2022
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