Audit, tax compliance and undeclared work: an empirical analysis

To encourage tax compliance towards the Italian tax contributive system, the Italian Social Security Institute (INPS) develops a number of audits intothe Italian firms. The aim of these inspections is to detect possible evasions and to threaten cheating enterpreneurs with penalties, if necessary. In our case "to cheat" means to hide a part of the labor forces to the authority, underdeclaring their real dimensions and thus to evade a certain amount of social-insurance taxes. In this paper we particularly focus on showing how it is possible to use individual audit data to better understand the relation between inspections and tax compliance, and consequently the relation between the policy of auditing and undeclared work. A new source of data was built for this purpose, merging information about firms with individual audit data. Our analysis is developed as follow: after a brief introduction, we describe the dataset and we give some details on the procedures used by inspectors. Then we show a simple model of auditing in order to enlighten relation between audit policy and work force declaration. The second part of the analisys, mainly empirical, attempts to explain how to estimate undeclared work starting from our new source of data, after that, we assess two microeconometric policy evaluation analysis. Our aim is to nderstand the relation that lies between the policy of auditing and a) the propensity to declare workers; b) the number of black workers implied in the labour market.Audit, undeclared work, sample selection, microdata.

UNDECLARED WORK AND WAGE INEQUALITY

In this paper we study how undeclared work affects the wages of undeclared and declared workers and in particular the declared wage inequality. Using individual data on Italy in the years 2000-2004, we compute a cross and own labor demand elasticity for undeclared and declared work. We provide an identification strategy relying on Italian amnesty tax laws in 2002. Such laws have changed the shape of Italian undeclared sector causing a quick emersion of undeclared workers. Our results based on a set of 2SLS regressions suggest that undeclared work: 1) decreases declared wages, 2) adversely affects undeclared wages and 3) raises wage inequality in the declared sector. Undeclared work competes more with least skilled jobs, while do not affect high skilled jobs. We found complementarity between undeclared workers and medium skills jobs. As a consequence reducing undeclared work decreases wage inequality as well as it decreases the earnings in medium skill sectors. This result suggests that undertaking reducing undeclared labor-policy might encounter resistance because of welfare loss of the medium class of workers.Elasticity of labor demand, Undeclared labor, Wage inequality

The Emersion Effect: an analysis on labor tax evasion in Italy

We analyze how different policy interventions may incentive emersion from unde-clared work. We use Italian data over the period 1998-2003 to investigate whether the 2003 Italian labor market reform was able to reach the objective to reduce the share of shadow economy. We develop a search and matching model, á la Mortensen, on the basis of our empirical investigation to determine the right mix of policy interventions which maybe effective in generating an emersion effect. Our preliminary findings show that differentiated forms of taxations and enforcement might create a good combination of incentives to achieve a significant reduction in undeclared work

The “emersion” effect: an ex post and ex ante social program evaluation on labor tax evasion in Italy

We analyze how different policy interventions may incentive the transition of workers from the informal to the formal sector. We use Italian data over the period 1998-2008 to evaluate ex post whether the 2003 Italian labor market reform was able to reach the objective to reduce the share of shadow employment. Based on our empirical results, we develop an ex ante evaluation based on a search and matching model, á la Mortensen and Pissarides to determine the right combination of policy interventions which may be effective in generating a significant reduction in undeclared work together with an expansion of the formal sector. We find that in an economy where permanent and temporary contracts coexist, the combination of lower payroll taxes for permanent jobs and higher probability of being audited generates a compression of the informal sector, leaving unemployment unchanged. A similar result can be obtained through a reduction of the firing cost associated with permanent jobs, even though this causes temporary contracts to increase relatively more than permanent contracts

Migration, labor tasks and production structure

We assess the effect of migrants’ stock on the production structure of the Italian provinces (NUTS3) in 1995–2006. Although the investigated time span is very short, the effect is small but statistically significant: a doubling in the ratio of foreign-born residents to the province population induces a significant increase in manufactures’ value added with respect to services’ value added between 12 and 21 per cent. These effects are more intense when considering an increase in foreign-born populations drawn from countries more different to Italy (in terms of GDP per capita and educational attainment). These results are compatible with the reduced form of a two-sector model where we assume that production is performed with one mobile factor and two sector-specific CES labor composites of simple and complex tasks. If migrants and natives have different productivity when performing simple or complex tasks, an inflow of migrants induces production restructuring in favor of the simple-task intensive sector

Do You Think Your Risk Is Fair Paid? Evidence From Italian Labor Market

Starting from Adam Smith's intuition, compensating wage differentials are one of the most widespread explanation to describe why agents should bear occupational risk of injury and death. For nearly thirty years, economists have attempted to and empirical evidence on such wage differentials mostly relying on estimation of a simple wage equation. This paper claims to put one step forward. Using the Survey of Household Income and Wealth (SHIW) 2004 we estimate for Italy the wage premium held by workers in risky occupations by means of the matching estimator. Such technique is desirable because it attempts to remove all the differences in wage coming from heterogeneity across individuals and not directly imputable to risk. Estimates suggest that net hourly wage premium is about 3% to manual workers and nearly null to non-manual workers. When we split the sample along the employer size, our findings show a heterogeneous treatment with respect to occupational status. Small firms tend to flatten out any risk premium to manual workers, while they recognize roughly 6% to non-manual workers; the opposite occurs when we look at medium-large firms wherein manual workers gain 1.5% to 5% more with respect their counterparts. Therefore, it seems that wage-risk trade off does not always emerge as hedonic wage theory would predict.wage differentials; risky jobs; value of a statistical life; propensity score matching.

Central command, local hazard and the race to the top

This paper explores for the first time the consequences of centrally imposed local tax limitations on the modelling and estimation of spatial auto-correlation in local fiscal policies, and compares three spatial interaction estimators: a) the conventional maximum likelihood estimator that ignores censoring; b) a spatial Tobit estimator; c) a discrete hazard estimator. Implementation of the above empirical approaches on the case of local vehicle taxation in Italy provides a reasonably coherent picture in terms of the direction and size of the spatial interaction process, and offers a plausible spatial interpretation of the race to the top in provincial vehicle taxes

Employer education, agglomeration and workplace training: poaching vs knowledge spillovers

This paper analyzes the role of the employer in workplace training, a novelty with respect to the literature on this topic. Taking advantage of a unique dataset on Italy, we study how individual employer profile and the agglomeration of employers influence firms‟ propensity to invest in training. Our findings show that highly educated employers have a greater propensity to invest in workplace training. Moreover, we are able to capture the effect of employers‟ human capital agglomeration on the training decision. We assert that such agglomeration leads to two different alternative scenarios: 1) a poaching effect may prevail, therefore competition among employers induces less propensity to train workers; 2) a positive knowledge spillover effect may prevail leading to a greater propensity to engage in training. We test these two options discovering that in the Italian case, where small businesses are prominent, the first effect is stronger. Several econometrics issues are considered in our empirical strategy: the skewed and bounded nature of the training decision indicator, the endogeneity issues derived from the agglomeration effect as well as the cross section dependence problems affecting standard errors

Strategic fiscal interaction across borders: Evidence from French and German local governments along the Rhine Valley

This article contributes to the literature on local tax interactions. Its novelty lies in its focus on the interactions of local governments across national borders. We use panel data for the French and German municipalities in the Rhine Valley for the period 2000 2007. The local governments of each country influence firms' overall tax burdens, but the tax instruments available at the local level differ. We estimate panel models that distinguish between the effects of competing municipalities belonging to the same country and belonging to the other country. Our empirical model shows that local jurisdictions along borders choose their business tax rates based on those of their domestic neighbors and that foreign fiscal policy does not have an impact on the local domestic tax setting behavior in these contexts

Intracranial Sonodynamic Therapy With 5-Aminolevulinic Acid and Sodium Fluorescein: Safety Study in a Porcine Model

BackgroundSonodynamic therapy (SDT) is an emerging ultrasound-based treatment modality for malignant gliomas which combines ultrasound with sonosensitizers to produce a localized cytotoxic and modulatory effect. Tumor-specificity of the treatment is achieved by the selective extravasation and accumulation of sonosensitizers in the tumor-bearing regions. The aim of this study is to demonstrate the safety of low-intensity ultrasonic irradiation of healthy brain tissue after the administration of FDA-approved sonosensitizers used for SDT in experimental studies in an in vivo large animal model.MethodsIn vivo safety of fluorescein (Na-Fl)- and 5 aminolevulinic acid (5-ALA)-mediated low-intensity ultrasound irradiation of healthy brain parenchyma was assessed in two sets of four healthy swine brains, using the magnetic resonance imaging (MRI)-guided Insightec ExAblate 4000 220 kHz system. After administration of the sonosensitizers, a wide fronto-parietal craniotomy was performed in pig skulls to allow transmission of ultrasonic beams. Sonication was performed on different spots within the thalamus and periventricular white matter with continuous thermal monitoring. Sonication-related effects were investigated with MRI and histological analysis.ResultsPost-treatment MRI images acquired within one hour following the last sonication, on day one, and day seven did not visualize any sign of brain damage. On histopathology, no signs of necrosis or apoptosis attributable to the ultrasonic treatments were shown in target areas.ConclusionsThe results of the present study suggest that either Na-FL or 5-ALA-mediated sonodynamic therapies under MRI-guidance with the current acoustic parameters are safe towards healthy brain tissue in a large in vivo model. These results further support growing interest in clinical translation of sonodynamic therapy for intracranial gliomas and other brain tumors