Tax Evasion and the Shadow Economy

Tax Evasion and the Shadow Economy

Edited by Michael Pickhardt and Aloys Prinz

Leading scholars examine recent evidence from theoretical and empirical research on tax compliance and tax evasion, and provide an in-depth analysis of underlying methods. Strategies to fight tax evasion are evaluated and the motivations behind it are explored, as are the impact and size of the shadow economy in Europe. As well as promoting a better understanding of the issues, this book intends to stimulate further debate and, in so doing, broaden the exchange of ideas and concepts.

Chapter 3: Personal Income Tax Evasion in Italy: An Estimate by Taxpayer Type

M. Rosaria Marino and Roberta Zizza

Subjects: economics and finance, austrian economics, economic crime and corruption, public choice theory, public finance


M. Rosaria Marino and Roberta Zizza 3.1 INTRODUCTION In the Italian tax system, personal income tax (Irpef) applies to a relatively large tax base represented by the majority of incomes.1 It is a ‘personal’ tax, as its amount depends on some specific features of the taxpayer (occupation, household composition, specific expenses of a personal nature and so on). It is also a progressive tax since its increasing tax rates apply to specified income brackets. For these reasons, since its introduction Irpef has taken a key role in implementing the principles of vertical and horizontal equity. However, this role has been partly thwarted by tax evasion. Along with family allowances, Irpef represents today the main tool for income redistribution policies, i.e. policies aimed at alleviating the tax burden on households with low income and a large number of components. This is especially true since the Italian tax system lacks more appropriate redistribution tools, such as subsidies or a negative tax programme able to support people with tax liabilities smaller than tax credits (so-called incapienti). In 2004 (the reference year in our analysis) more than 40 million taxpayers, representing around 70 per cent of the whole Italian population, earned incomes subject to Irpef and paid overall more than one-third of the general government tax revenue (Table 3.1). The size and the central role played by Irpef in the Italian tax system justify the relevance of estimating the propensity of taxpayers to evade this tax. In the literature two main approaches are used....

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