Tax evasion in Italy: an analysis using a tax-benefit microsimulation model∗

In this paper we use a direct method to estimate tax evasion in Italy as-suming that tax evaders might consider declaring a closer-to-true income in an anonymous interview. The methodology is applied to work income only, as pension income cannot be hidden to tax authorities and capital income is measured with large error in available survey data sets. The data sets consid-ered are the 1998 and 2000 Survey of Household Income (SHIW) by the Bank of Italy and the 1998 and 2000 tax forms table produced by SeCIT. Posing particular attention to the post-stratification of the data, we find that tax eva-sion is consistently higher for self-employment income than for employment income and it is larger at bottom deciles, although some under-sampling prob-lems need to be considered. The pattern of work income concealment found shows that personal income tax evasion reduces the average tax rate but it also increases the progressivity of the tax system. This result is however driven by the large values of income avoidance found in bottom deciles, which might itself be due to the under-sampling of income receivers with poorest income. The results are consistent across the two years considered.