SOSPESO -Michele Bernasconi - Flat tax reforms and tax evasion under reference dependent preferences
Meeting Room 1, Campus San Giobbe, Venezia
Titolo completo: Flat tax reforms and tax evasion under reference dependent preferences. Simulations and distributive effects
Co-Autori: Andrea Albarea, Anna Marenzi, Dino Rizzi
Abstract: It is often argued that a flat tax rate can reduce tax noncompliance. The prediction is however inconsistent with classical portfolio theory of tax evasion. We study the impact of a flat tax in a microsimulation tax-benefit model of Italy based on reference dependent preferences. Contrary to classical theory, under reference dependent preferences a flat tax reform can increase or decrease taxpayers’ compliance depending on whether taxpayers’ incomes are below or above a reference point. We conduct various simulations of flat tax reforms which compute endogenously the reference income. Our simulations show that a flat tax can hardly reduce the overall evasion rates in Italy. Tax gaps can reduce only when the flat rate induces implausibly large supply-side effects; or under strong behavioral (ethical) taxpayers’ response. Redistributive effects are in any case large.
Dipartimento di Economia (InSeminars)