A Model of the Italian Cut-Off System for Taxing Small Businesses
University of Eastern Piedmont - A. Avogadro - Department of Public Policy and Public Choice
Università del Piemonte Orientale
The Studi di Settore are used by the Italian tax administration to calculate reference revenue levels for small businesses and provide a kind of cut-off level for tax audits. Recently new rules have been introduced in order to render the Studi di Settore more efficient in producing realistic estimates, with the aim of reducing the "legalized evasion" that might arise in case of a systematic downward bias. Voices of the involved categories, however, convinced the Government to partially step back. Building upon the standard firm's tax evasion model of Cowell (2003) and the approach of Santoro (2006) we show that, under given conditions, an efficiency increase might backfire implying a larger overall tax evasion and a smaller tax revenue.
Number of Pages in PDF File: 10
Keywords: tax evasion, cut-off rule, firms
JEL Classification: H25, H26, K42working papers series
Date posted: July 13, 2007
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