Italy, which ranges among the OECD countries with the highest share of shadow economy, has adopted in 1998 a peculiar audit scheme (Studi di Settore), for small and medium enterprizes and self-employed. This scheme is based on a particular interaction between the Tax Agency and taxpayers, where the Tax Agency unveils part of the information used to develop its audit rule. We study this scheme by means of a simple theoretical model and test it using a sample of 23,000 firms in manufacturing sectors in 2005 tax year. A number of theoretically relevant relations are confirmed. In particular, reports made by taxpayers seem to be positively associated to the firm’s size. When taxpayers know that the probability to be audited decreases, they tend to report less. Other factors which are expected to influence the behavior by taxpayers, have no or ambiguous impact on reporting behavior.
“Taxpayer behaviour when audit rules are known: evidence from Italy”
SANTORO, ALESSANDRO;FIORIO, CARLO
2011
Abstract
Italy, which ranges among the OECD countries with the highest share of shadow economy, has adopted in 1998 a peculiar audit scheme (Studi di Settore), for small and medium enterprizes and self-employed. This scheme is based on a particular interaction between the Tax Agency and taxpayers, where the Tax Agency unveils part of the information used to develop its audit rule. We study this scheme by means of a simple theoretical model and test it using a sample of 23,000 firms in manufacturing sectors in 2005 tax year. A number of theoretically relevant relations are confirmed. In particular, reports made by taxpayers seem to be positively associated to the firm’s size. When taxpayers know that the probability to be audited decreases, they tend to report less. Other factors which are expected to influence the behavior by taxpayers, have no or ambiguous impact on reporting behavior.
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