Tax evasion and government size: evidence from Italian provinces

Elena D’Agostino (), Marco Alberto Benedetto () and Giuseppe Sobbrio ()
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Elena D’Agostino: University of Messina
Marco Alberto Benedetto: University of Calabria
Giuseppe Sobbrio: University of Messina

Economia Politica: Journal of Analytical and Institutional Economics, 2021, vol. 38, issue 3, No 14, 1149-1187

Abstract: Abstract We analyze the impact of government size, measured by total spending per capita, on tax evasion at the provincial level in Italy over the period 2001–2015. In order to solve endogeneity issues we rely on a system GMM and find that public expenditure negatively affects tax evasion, as taxpayers perceive the government is efficiently spending resources coming from the tax levy. Results are confirmed when we (1) consider expenditures related to long-term investments, namely capital spending per capita, and (2) directly test the impact of government efficiency on tax evasion. In addition, we show that the impact of public spending is heterogeneous across geographical areas: an increase in public expenditure leads to a downward shift in tax evasion only in the northern part of Italy, characterized by a relatively larger initial level of public goods provision.

Keywords: Tax evasion; Public spending; Public goods; GMM; Efficiency (search for similar items in EconPapers)
JEL-codes: C33 C59 H20 H21 H26 H50 (search for similar items in EconPapers)
Date: 2021
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Citations: View citations in EconPapers (1)

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DOI: 10.1007/s40888-021-00227-7

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