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Business taxpayer response to an increased probability of audit: some evidence from Italy
Business income tax evasion has been seldom investigated mostly because of lack of data. In this paper we analyse a large data set produced by the Italian Tax Agency for this project to analyse a recent policy to contrast business income tax evasion. Since 1998 Italy has adopted a method to audit small businesses (Studi di Settore), which defines the probability of tax audits based on presumptive and reported levels of output. In 2007 a letter campaign was implemented by the Italian Tax Agency aimed at reducing manipulation of input reports for tax purposes threatening that if the “anomaly” was not removed with the 2008 tax declaration, the probability of a thorough tax audit would have drastically increased. By using matching methods on a sample of about 50,000 treated firms and 150,000 controls, we find that the letter campaign had a positive and statistically significant average treatment effect on treated firms. A cost-benefit analysis of the policy suggests that the letter campaign produced an increased amount of declared taxable profits of 80 million euro and an increased tax revenue of 24 million euro.
Carlo Fiorio (PhD LSE) is associate professor of public finance at the University of Milan, reseach fellow at Econpubblica and Irvapp. His research interests include Public Economics, Applied Econometrics, Inequality Analysis, Labour Economics.
IRVAPP/Fondazione Bruno Kessler - Via Santa Croce 77 - Trento
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