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Do Small Businesses Respond to a Change in Tax Audit Rules? Evidence from Italy

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  • Alessandro Santoro

Abstract

Tax evasion by small businesses can be tackled using different approaches. A traditional one recommends to increase the probability of an audit that is perceived by small businesses. Clearly, this entails high administrative and compliance costs. Another possibility is to reduce the room for accounting manipulation by applying more stringent accounting standards. This article uses a panel of administrative data concerning 71,000 Italian small businesses observed in tax years 2005 to 2008. The aim of this article is to evaluate the impact of a reform implemented in 2006. Until 2005, small businesses adopting more stringent accounting standards were granted a special audit regime such that the probability to be audited was particularly low. This regime was repealed in 2006. It is shown that the reform increased profits and turnover, as reported by the subset of businesses that were more likely to perceive the reform as an increase in the probability of an audit.

Suggested Citation

  • Alessandro Santoro, 2017. "Do Small Businesses Respond to a Change in Tax Audit Rules? Evidence from Italy," Public Finance Review, , vol. 45(6), pages 792-814, November.
    • Handle: RePEc:sae:pubfin:v:45:y:2017:i:6:p:792-814
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    Cited by:

    1. Marie Bjørneby & Annette Alstadsæter & Kjetil Telle, 2018. "Collusive Tax Evasion by Employers and Employees: Evidence from a Randomized Field Experiment in Norway," CESifo Working Paper Series 7381, CESifo.
    2. Giancarlo Ferrara & Arianna Campagna & Vincenzo Atella, 2019. "Disentangling tax evasion from inefficiency in firms tax declaration: an integrated approach," CEIS Research Paper 468, Tor Vergata University, CEIS, revised 06 Sep 2019.

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