Time-inconsistent fiscal policy and tax evasion: an empirical investigation

Using annual Italian data we document that unanticipated audit shocks deter evasion only in the short-run. With dodgers becoming “more skilled” as time passes by, audit procedures have to be revised over time so as to be effective policy measures. A counterfactual exercise confirms that tax dodging would have increased if the fiscal authorities did not deviate from their systematic behavior.