Tax evasion, is it worth to fight it?


One of the main issues in Italy is tax evasion. Discussing with my friend Jorge, we concurred that contrasting it could finance the huge debt affecting “the Italian boot”. May exist any rational “unethical” economic reason different from collusive behaviours to justify tax evasion? Jorge and I discussed on the negative effect that fighting tax evasion could have on growth, leading people to save and invest less than when they used to when they could cheat on the State. On the other hand, the government could target part of the restored income in public expenditure (by definition spurring growth). Also, I believe a tax system ruling progressively everyone, could have a re-distributional function, arguably stimulating growth. Finally, it is important to notice that part of the tax evasion in Italy comes from criminal organizations’ activity (Mafia, Ndrangeta, Camorra, Sacra Corona Unita), that surely do not have in their interest the growth of GDP.

Some figures: Italian debt (2009): 110% of GDP (ECB); TAX evasion: €333 billions in 2009, about 20% of GDP (contribuenti.it).

Also, I want suggest you to read the Economist’s review on Alesina et al. 2010, who studied in a recent paper if political economic history shows a negative relationship between austerity policies and the probability of being re-elected.

See you next post!

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5 responses to “Tax evasion, is it worth to fight it?

  1. Very interesting post. I think assessing “unethically” the impact of tax evasion is a major issue in terms of policy implications.

    Taxation implies a transference of money from individuals to a government that decide how to spend the money. Since both taxation and public expenditure are progressive, taxation also implies redistribution. The key issue here is first to what extend the government would use the tax income evaded to further growth better than the individuals might have use it. Second, since tax evasion implies a reduction in public goods provision and more inequality, how strong is the link between inequality and growth and public good provision and growth.

    Different studies estimate the optimal taxation level (Laffer curve). Hence a key issue would be whether this level is effectively achieved by the government action (or absence of action) regarding tax collection.

    Nevertheless, I believed an efficient taxation policy that prevent evasion can further growth in at least three more ways. First, although a double causation is possible, an efficient taxation policy is likely to improve governance. Secondly, taxation raises security in the expectations (I know how much I am going to pay when I get involved in any economic activity), and finally an effective taxation may increase the citizenship feelings and the political involvement of the citizens.

  2. At this link (http://en.wikipedia.org/wiki/Laffer_curve) the theoretical fundament of the Laffer curve, quoted by Jorge in the previous post.

  3. Interesting topic Antonio and nice comment Jorgito! See you guys soon!

  4. Very interesting topic, (now I know what the Laffer Curve is) well done!

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