Working Paper: NBER ID: w25745
Authors: Marco Battaglini; Luigi Guiso; Chiara Lacava; Eleonora Patacchini
Abstract: To study the role of tax professionals, we merge tax records of 2.5 million taxpayers in Italy with the respective audit files from the tax revenue agency. Our data covers the entire population of sole proprietorship taxpayers in seven regions, followed over seven fiscal years. We first document that tax evasion is systematically correlated with the average evasion of other customers of the same tax professional. We then exploit the unique structure of our dataset to study the channels through which these social spillover effects are generated. Guided by an equilibrium model of tax compliance with tax professionals and auditing, we highlight two mechanisms that may be behind this phenomenon: self-selection of taxpayers who sort themselves into professionals of heterogeneous tolerance for tax evasion; and informational externalities generated by the tax professional activities. We provide evidence supporting the simultaneous presence of both mechanisms.
Keywords: Tax Professionals; Tax Evasion; Informational Hubs
JEL Codes: H26; K34
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Self-selection of taxpayers into accountants (M41) | Tax evasion behavior (H26) |
| Informational externalities from accountants (M41) | Tax evasion behavior (H26) |
| Tax professionals influence clients' compliance behavior (H26) | Tax evasion (H26) |
| Tax evasion by a taxpayer (H26) | Evasion of other clients served by the same tax professional (H26) |
| Average evasion of accountant's clients (H26) | Tax evasion by an individual taxpayer (H26) |