Last week we had the pleasure of having Sauro Mocetti from the Bank of Italy present his work on Tax evasion and competition: evidence from Italy.

His paper shows that tax evasion significantly distorts market competition and firm productivity. Leveraging variation from several preferential tax regimes for individual firms in Italy, the authors compute a sector-by-municipality-by-year tax evasion proxy as the fraction of individual firms who manipulate their reported revenue. This measure widely varies geographically, across sectors and over time within municipality-sector cells, their fine definition of a market. They then combine market-level variations in tax evasion with administrative panel data on the universe of competitor firms, defined as those non-eligible for preferential tax schemes and operating in the same market.

Their results show that competitor firms in high-tax evasion markets experience significant losses relative to those in low-tax evasion markets, encompassing drops in revenue, value added, profits and labor payoffs. At the market level, they find that tax evasion favors market concentration and reduces firm survival rates. Their findings raise concerns on the equity and efficiency implications of preferential tax regimes for individual firms, a policy applied by most countries.

To learn more about Mocetti's work and opinions about the future of the field of Applied Economics we asked him to briefly answer a series of questions. You can find his answer to each of our questions below.

The CC-ME team would like to congratulate Sauro Mocetti for his insightful research and thank him for presenting it in our Seminar Series.

For more information on the upcoming presentations and how to participate in our Seminar Series please visit our dedicated website.