The tax evasion social multiplier: Evidence from Italy

Roberto Galbiati and Giulio Zanella

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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.

Date: 2012
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Published in Journal of Public Economics, 2012, 96 (5-6), pp.485 - 494. ⟨10.1016/j.jpubeco.2012.01.003⟩

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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-01410557

DOI: 10.1016/j.jpubeco.2012.01.003

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