Tax evasion in Italy is much less than 100 billion. Analyses

7 October 20222 years ago babelfish

Tax evasion: numbers and insights. The analysis by Pietro Boria, professor of tax law at the La Sapienza University of Rome

The long-standing and debated topic of tax evasion in Italy was the subject of a research work conducted by the Chair of Tax Law of the Faculty of Law of the Sapienza University of Rome.

o The starting point of this research has been suggested by numerous recent interventions with an empirical, journalistic and / or political / institutional observer content, which note the lack of an analytical reconstruction of the phenomenon of tax evasion in Italy. And indeed, tax evasion – as a central phenomenon of collective coexistence, capable of seriously altering the social pact of the state-community – requires an accurate and articulated reconstruction of the micro-economic disaggregated data (and not marginal or episodic as often carried out in recurring evaluations). The main purpose of the research therefore concerns the reconstruction of the evasive phenomenon in an innovative perspective, according to a different methodology than that applied in the official documents adopted by the financial administration to estimate the quantitative dimension of the phenomenon itself.

The contents of the research

The contents of the research concerned various conceptual elements of tax evasion, namely:

the fight against tax evasion as an essential component of the social pact that exists within the state-community in current experience;
the notion of tax evasion also in relation to the cases, conceptually contiguous, of avoidance and abuse of tax law;
the legal dimension of tax evasion in the Italian legal system;
the choice of the method of empirical reconstruction “that starts from the bottom” (the so-called bottom up methodology) as the logical premise for the innovative reconstruction of the phenomenon of tax evasion in Italy;
the specific analysis of the main categories of taxpayers in a sectoral and micro-economic perspective and, consequently, the reconstruction of the quantitative scope of tax evasion in Italy
verification of the results of the tax evasion activity carried out in Italy on the basis of regulatory solutions and assessment activities;
the dimension of tax evasion;
the fight against international tax evasion in the current scenarios of unfair tax competition between states.

The methodology followed in the scientific research work: the bottom up method (instead of the top down one).

The qualifying element of the research undoubtedly concerns the choice of the method to be used for the measurement of tax evasion (a highly debated topic in the economic literature). The doctrine usually groups the evasion estimation methodologies into two macro-categories:

deductive methodologies (also defined top down or indirect);
inductive methodologies (also defined bottom up or direct).

The top down method is based on the comparison between the tax data and a corresponding macro-economic aggregate (usually represented by the financial flows taken from the national accounts), used to determine a theoretical tax base against which to compare the tax base declared by the taxpayers. . The tax gap is identified in relation to the differential result produced by these two quantities. The top down method was also adopted in Italy for the official estimate of the tax gap of direct and indirect taxes.

However, economic doctrine (both national and international) has demonstrated the high degree of approximation of the use of this methodological approach in official estimates, in consideration of the excessive uncertainty that characterizes it. Furthermore, the top down method is denoted by the further criticality of the impossibility (or in any case of the remarkable difficulty) of proceeding with a disaggregation of the estimates in relation to the distinct articulations of tax evasion in the various segments of taxpayers, resulting in excesses of simplification and conjecturality .

On the contrary, the bottom-up methodological approach is based on the use of sectorial information sources and / or micro-economic data that allow a detailed analysis of the evasive phenomenon. This is an empirical method that has the advantage of providing a detailed and specific reconstruction in relation to activities and taxpayers, differentiating them by categories and market segments. The bottom up method thus guarantees better adherence to real data, as it is based on more detailed information than that which would be obtained by applying indirect (or top down ) methods.

To attribute a material dimension to an intangible phenomenon

It should also be made clear that the estimate of tax evasion constitutes a conjectural attempt to “ attribute a material dimension to an intangible phenomenon ”.

In this regard, it should in fact be specified that:

the matter of tax evasion is connected to an empirical phenomenon – the underground economy – which is not known in analytical and precise terms (at least in the current state of knowledge);
the appreciation of tax evasion is thus inevitably deferred to conjectural evaluations and estimates;
each method used for the aforementioned estimates and evaluations of the evasive phenomenon – top down (adopted by the official estimates in Italy) or bottom up (proposed in this research) – is therefore denoted by an essential degree of approximation;
the use of the bottom up method, accepted in this research for the quantitative reconstruction of tax evasion in Italy, involved the use of data obtained from public and official sources (in particular, ISTAT, MEF, Agenzia Entrate);
on the basis of the aforementioned data, the research simulated possible effects of tax evasion for individual micro-economic categories, assuming a series of conjectural events (and therefore of “unknown facts” derived from “known facts”);
the assumptions of the conjectural reasoning have been indicated for each micro-economic category and founded on a logical-empirical basis;
the conclusions about the evasive phenomenon in Italy are therefore based on a series of empirical evaluations that appeared to the working group reasonably well founded (but certainly not demonstrated in a precise way).

Therefore, the research methodology does not contemplate the use of innovative statistical techniques or in any case derived from cognitive elements other than official ones, but has been carried out through an innovative combination of conjectural elements of an empirical nature applied to official statistics.

In this perspective, the research is certainly intended not to formulate "a truth" (or in any case a univocal result) on the quantitative dimension of tax evasion in Italy, but rather to express a trend that is a logical alternative to the reconstruction expressed in public accounting.

In other words, this research – in line with the experimental nature of academic initiatives – tends to " illustrate a possible reconstructive hypothesis " of the evasive phenomenon to be opposed to the official reconstruction.

The scientific and political / institutional significance of this alternative reconstruction naturally depends on the sensitivity of those who read / use the research itself.

The results of the research.

The research work has produced some results which can be summarized here.

Tax evasion in Italy reconstructed with the bottom up method has a widely different scope compared to that officially determined in public accounting documents through the top down method (which in recent years has been equal to approximately 100 billion euros).
In particular, through the disaggregated analysis of the various economic sectors referable to the activities of taxpayers, the overall tax evasion figure in Italy was estimated at around 10 billion euros per year.
Assuming the empirical (and official) results of the administrative activity to combat tax evasion, an estimated tax evasion figure of about 12 billion euros per year results.
By rectifying the aforementioned data in prudential terms (to correct potential inaccuracies / inaccuracies / approximations), tax evasion in Italy has been estimated at 15 billion euros per year.
It is thus evident that the result of this research leads to a truly remarkable difference with respect to the official data; tax evasion reconstructed with the bottom up method is in fact equal to approximately 15% of the tax evasion established with the top down method.

As repeatedly reiterated, this is obviously a conjectural result, and therefore characterized by an approximation intrinsic to every conjectural method, which however expresses a significantly different trend than the official result shown in public accounting documents.

The reconstruction of the quantitative dimension of tax evasion as a financial illusion

The contents of the research summarized here seem to raise a basic question: why the official data (based on the top-down method) assumes such a high quantitative consistency as to appear widely different from the data that could be reached through a different analysis methodology (based on on the bottom-up method)? And why isn't an intermediate solution at least proposed that may appear to have less approximation?

In this regard, it seems possible to envisage different hypotheses for an answer:

a large-scale tax evasion allows recourse to an abstraction in the public finance accounts, that is, the prospect of recovering tax revenue through the contrast policy (given that it is permanently reported in the budget maneuvers of recent years);
proposing a data of large evasion allows to "unload" the responsibility of the critical issues of public finance (and in particular of the operating deficit reported stably in recent decades) on an audience of "invisible culprits" (ie tax evaders);
moreover, the representation of a massive and widespread tax evasion generates the expectation of a prospective reduction of the future tax burden on "good taxpayers", in relation to the desirable favorable trend of the policy to combat the tax evasion phenomenon.

In this perspective, the official data of tax evasion seems to be attributable to those institutional mechanisms, frequent in public finance, which induce adhesive (or in any case non-colliding) behavior of taxpayers (ie the so-called "financial illusions")

Tax evasion as part of the tax relationship narrative.

Indeed, it is a “narrative” of the tax relationship that minimizes the role of the State with respect to the painfulness of taxes, rather transferring this state of mind to the transgressive behavior of a part of “bad taxpayers”; the abnormal tax evasion generates the worsening of the tax burden on "good taxpayers" and determines the incomplete functioning of the welfare state .

However, this abnormal and excessive representation of tax evasion is not free from side effects and negative implications on the validity of the social pact. And indeed, the prospect of an enormous amount of tax evasion develops an inevitable social tension within the national community, producing a growing rancor on the part of the categories of taxpayers whose virtuosity (employees and retirees) is supposed to be towards the categories of potential tax evaders (in particular, professionals, traders and artisans).

An effective reconstruction of the phenomenon of tax evasion, determined on the basis of detailed information and empirically detected estimates, therefore has important political and institutional implications, since it allows a more adequate view of the tax system and the consequent socio-economic links.

It follows that the correct reconstruction of the evasive phenomenon must be considered not only a mere statistical data, but rather a symbolic message aimed at reinforcing the fiscal pact that founds living together within the national community.

This is a machine translation from Italian language of a post published on Start Magazine at the URL https://www.startmag.it/economia/evasione-fiscale-italia-100-miliardi/ on Fri, 07 Oct 2022 05:21:48 +0000.