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The deterrence effect of real-world operational tax audits on self-employed taxpayers: evidence from Italy

Gabriele Mazzolini (), Laura Pagani () and Alessandro Santoro
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Gabriele Mazzolini: Italian Revenue Agency
Laura Pagani: Università di Milano-Bicocca

International Tax and Public Finance, 2022, vol. 29, issue 4, No 8, 1014-1046

Abstract: Abstract We use a large administrative tax-returns panel dataset merged with a tax audit database to estimate the effect of real-world operational tax audits on subsequent tax behavior of a large sample of Italian self-employed taxpayers. Results from operational audits do not suffer from the fact that taxpayers are aware that they have been randomly selected for research purposes and, then, such audits are viewed as more of a signal about true audit rates by the taxpayer. Our empirical approach relies on fixed-effects difference-in-difference comparisons with an ex-ante matched sample of non-audited taxpayers. To address concerns about the endogenous selection into audit, we provide evidence for the common trends assumption. We find a positive and lasting effect of audits on subsequent reported income. However, in line with theoretical predictions, taxpayers do not increase tax compliance when the tax authority does not assess a positive additional income. Our results are robust to a variety of specifications and samples.

Keywords: Tax compliance; Administrative panel data; Tax audits (search for similar items in EconPapers)
JEL-codes: C23 C55 H26 (search for similar items in EconPapers)
Date: 2022
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DOI: 10.1007/s10797-021-09707-9

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