The tax evasion social multiplier: Evidence from Italy

Roberto Galbiati and Giulio Zanella

Journal of Public Economics, 2012, vol. 96, issue 5, 485-494

Abstract: We estimate social externalities of tax evasion in a model where congestion of the auditing resources of local tax authorities generates a social multiplier. Identification is based on a contrast of the variance of tax evasion at different levels of aggregation. We use a unique data set that contains audits of about 80,000 small businesses and professionals in Italy and also provides an exact measure of reference groups in our model. We find a social multiplier of about 3, which means that the equilibrium response to a shock that induces an exogenous variation in mean concealed income is about 3 times the initial average response. This is a short-run effect that persists to the extent that auditing resources are not adjusted to internalize the congestion externality.

Keywords: Social interactions; Neighborhood effects; Social multiplier; Tax evasion; Tax compliance; Excess variance (search for similar items in EconPapers)
JEL-codes: C31 H26 Z13 Z19 (search for similar items in EconPapers)
Date: 2012
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Citations: View citations in EconPapers (63)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:pubeco:v:96:y:2012:i:5:p:485-494

DOI: 10.1016/j.jpubeco.2012.01.003

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