And once again, Italians were concerned about political crises and, consequently, political terrorism. These institutional and political dynamics structured the way in which Italians viewed their state and fellow citizens, consolidating the low-compliance environment. Two decades after regional governments had been enshrined into the constitution, the state introduced regional governments in the spring of By the mids, Italian regions could provide subsidies, fund and staff welfare p.
However, as Clark writes, these regional governments fed the Calabrian Mafia ndrangheta and the Neapolitan camorra , with local barons supporting particularism, rather than creating more efficient, democratic institutions. Further unsuccessful attempts to curb tax evasion led to tougher sanctions on taxpayers and large tax reforms. However, a large aspect of these reforms concerned tax amnesty programs and a new Sector Studies program, both of which only furthered the low-compliance environment.
Finally, in the early s large-scale corruption was uncovered, bringing down the government and ushering in the era of Silvio Berlusconi—a renowned tax evader himself. After the introduction of regional governments in , important legislation was introduced to reform the tax system.
Tax reform introduced in by the Minister of Finance, Luigi Preti, forced Italy to construct a more modern tax system to match the demands of a developed nation. It further had to complement a burgeoning public deficit and a far more uncertain situation than the preceding decade. The basic foundation of these reforms rested on the same principles as previous tax reforms: administrative changes, especially reducing a bloated bureaucracy and the numerous superfluous laws; and improving how the administration calculated taxable income.
The state even attempted to revert to a more authoritarian regime—tough sanctions and stigmatization—to enforce tax compliance. Provincial newspapers throughout Italy published the names of famous people who had evaded their taxes as well as , tax evaders between and Prior to manette agli evasori , a judge could not indict an offender before there was undeniable proof of evasion Santoro , which, as I noted above, was an arduous process since the burden of proof was the responsibility of the investigators. Manette agli evasori resulted in an overburdened judicial system and a series of amnesty programs.
Additionally, tax amnesties and the inability to punish decreased compliance by influencing the compliance environment and social norms Alm, McKee, p. Nonetheless, the Italian tax administration has relied heavily on amnesties since unification.
According to Manestra , there were eighty-three separate amnesties between and , and between the tax reform and a form of tax amnesty was used every year. One of the major defects of repeated amnesty is it decreases the amount of risk associated with evasion. If potential evaders foresee an amnesty in the future, they will likely underreport their income. When asked about their opinion on tax amnesties, 50 percent of respondents said they were unfair, compared to 36 percent who said they were a good policy.
Following the reform, there were three main approaches that shaped the s tax reform bill, according to Manestra The most important aspect of these procedural changes was reforming the way in which small businesses fulfilled their accounting obligations. Structural changes attempted to fix the major sources of tax revenue, mainly VAT and direct taxes. Finally, quantitative reform set out to address the number of taxes, especially on sources of income.
As was common throughout the neoliberal era, tax reform in this period reduced tax rates while broadening the taxable base. However, income tax evasion actually increased after implementation of the tax reform through , decreasing slightly in —80, but never falling below The most important feature of the s tax reform was the adoption of Studi di Settore Sector Studies in Due to the large size of the self-employed and small-business sectors, focusing on this particular aspect of the economy was an important step forward for the administration.
While most countries collect various data on individuals and companies, then place them into homogeneous populations based on those characteristics with minimum expected incomes, Italy is rare in that it actually makes this data available to the taxpayer before they file their taxes. But the environment in which people operate fundamentally shapes how they frame the maximization benefits. The societal effect of this is also significant. If it is known that small businesses and the self-employed can easily avoid taxes, the ripple effects will weigh heavily on the Italian tax system.
He also was later convicted of tax evasion. The vicious circle that Steinmo discusses in the Introduction to this volume is evident throughout Italian history. An inefficient, corrupt, or a perceived-to-be-illegitimate state shapes a climate of distrust, rendering tax collection troublesome. Walk into any bar in Italy and you will likely hear someone lamenting their high taxes, poor public services, and corrupt politicians.
The compliance environment is a direct reflection of this. Indeed, taxes are often a major topic of national conversation. The fight against tax evasion in Italy goes back long before Italy was a unified nation. In fact, aspects of Italian life that we often take for granted are often the result of some clever way of circumventing tax laws. For example, a salt tax in twelfth-century Pisa persuaded Florentines to stop using salt when baking bread—an unfortunate trend that continues to this day.
Furthermore, tax evasion has historically been so rampant that Mussolini famously claimed that tax evaders are the worst parasites on earth. Similarly, former Prime p. Unfortunately, these references tend to lend weight to the amoral familial approach. However, the flaw in the amoral familialist argument leads us back to the complexities this study has sought to address in terms of tax evasion, compliance, and morale.
By constructing a historical landscape dating back to the Risorgimento through the fall of the First Republic, I have identified several periods and institutions that have influenced the relationship between state and citizen. The Risorgimento clearly had significant repercussions for Northern and Southern institutions and, in that, defined two different patterns of taxpayer behavior.
I have argued that Southern Italians perceived the North as a distinct entity apart from themselves, and even as colonizers, while the North embraced calls from liberals for a unified nation state. Because the North was politically dominant, the South was expected to contribute a disproportionate amount of revenue to fund public works projects largely going to the North. While the South was left neglected by the political class, clientelism became deeply ingrained into the Southern way of life.
In the North, political competition helped shape functioning public institutions and a thriving labor movement. Unification, two world wars and Fascism shaped the compliance environment in both the North and South. An underlying fear that the government would infringe personal freedom and rights made tax collection increasingly difficult.
This led to several tax reforms, most of which had very little effect on the compliance environment. Moreover, many of the more intrusive policies that would have resulted in increased controls were deemed unconstitutional. The administration thus felt handcuffed by certain institutional arrangements, rendering their only option a number of amnesty programs. These amnesty programs merely deepened the low-compliance environment, making it increasingly difficult to enforce existing tax laws. The administration, realizing that the main source of evasion was the self-employed and small-business sectors, implemented a series of reforms called Studi dei Settore in the late s.
However, due to the political power of this particularly large sector of the economy, the reform ended up benefiting the taxpayer instead of p.
Explaining Italian Tax Compliance: A Historical Analysis - Oxford Scholarship
Since then, the administration has attempted to fix some of the underlying problems with the tax system through pre-populated tax returns and a push to settle tax disputes out of court. Figures suggest that revenue as a result of these measures has increased. Social norms and equilibria are sticky. Apart from major punctuations in the environment, change is usually incremental.
What is it that is driving this contagious behavior? How can policymakers address the metaphorical elephant in the room the self-employed and small businesses while at the same time fixing underlying economic issues? Vanoni had impeccable foresight when he said that administration reform must be implemented in a way that considers tax compliance as part of a holistic approach, accounting for not only the administration, but also the institutional both formal and informal environment. Benchmarking and learning from other European countries such as Sweden regarding these issues could be a step forward in creating a new taxpayer equilibrium.
Alm, J. McKee, and W. Almond, G. Verba , The Civic Culture. Ambrosetti, C. Banfield, E. Glencoe: Free Press. Bergman, M. Bernardi, L. Pedone ed. Bhatti, J.
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Apostolou, E. Lyman, and E. Bianchi, L. Miotti, R. Padovani, and G. Bigoni, M. Bortolotti, M. Casari, D. Gambetta, and F. Carter, N. Cartocci, R. Clark, M. New York: Longman. Cosciani, C. Florence: La Nuova Italia. Cummings, R. Martinez-Vazquez, M. McKee, and B. Edlund, J. Luxembourg: European Commission. Ferrera, M. Frey, B. Fukuyama, F. London: Allen Lane. Gini, C. Turin: UTET. Huntington, S. Levi, M.
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Cambridge: Cambridge University Press. Pollard, J. Pommerehne, W. Hart, and B. Putnam, R. Leonardi, and R. Resoconti parlamentari , Repubblica, Camera dei deputati, Assemblea, Discussioni, I legislatura, seduta del 21 ottobre, pag. Ross, M.
Sabatini, F. Santoro, A. Bologna: Il Mulino. Scholz, J. Smith, K. Slemroad ed. Tabellini, G. Tarrow, S. Teorell, J. Charron, M. Samanni, S. Holmberg, and B. Torgler, B. Evidence from Multicultural European Countries. Visco, V. Gerelli and R. Valiani eds. Milan: Franco Angelli. Vitaletti, G.
Walston, J. In the Northern regions from Lombardy to Lazio, evasion of the regional tax on production Imposta Regionale sulle Attivita Produttive, IRAP ranges from about 13 percent to 54 percent; in the South the Mezzogiorno , covering Molise to Sicily, it ranges from about 55 percent to 94 percent see Figure 5. It is worth noting that both Liguria and Abruzzo do not conform to the expected North—South pattern. Abruzzo performs just slightly worse on The Quality of Government index see Table 5. The combination of lower-than-average quality of government and a high rate of self-employed individuals in Liguria could explain this unexpected result.
In addition, Tuscany, Umbria, and Marche all have higher rates of self-employed individuals than Abruzzo. See Putnam, Leonardi, and Nanetti ; Tabellini The center made up the remaining 28 percent of GDP. The figures are cumulative figures of evasion and avoidance rates for employees, agricultural workers, manufacturing, and the self-employed, calculated by Bernardi ; Visco a ; b ; ; and Vitaletti using data on taxable incomes provided by Istat.
A more detailed table, aggregated by type of employment, can be found in Manestra All Rights Reserved.
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