Book-Tax Gap. An Income Horse Race

This paper presents some stylised facts about the book-tax gap, i.e. the difference between book and taxable income, of Italian corporations. This divergence is a reflection of the usage of any tax shields and any applicable credits and rebates which, in turn, implies that the concept of taxable income is elusive. Moreover overlapping fiscal policies make harder, on the one hand, firms’ tax planning and, on the other hand, policymakers’ control on the effectiveness of their manoeuvres. As for the fiscal year 2000, evidence based on data drawn from the DIECOFIS database shows that, as expected (why pay more?), in Italy there is a widespread and active industry set up to enable taxpayers to identify and take advantage of particular tax effects. In that year there were 55,201 (16% of the) firms with positive book profits and reported non positive taxable incomes. A less expected outcome shows that the “income race” may finish in a quite different way. More than half (57%) of the uneconomic companies, end up with positive taxable incomes (83,449 in absolute terms). A disaggregated analysis highlights that this latter share is much lower among southern corporations and large enterprises, especially in the construction and in the hotel/restaurant services sectors. Finally, it results that industries whose firms more often declare negative taxable incomes tend to display significantly higher shares of irregular workers, as well.