Media Briefings

USING THE MEDIA TO DISCOURAGE TAX-DODGING: Evidence from Milan of the effectiveness of a well-publicised audit ‘blitz’

  • Published Date: April 2017

Publicising tax audits is a low cost way to curtail tax evasion, according to research conducted in Italy by Simona Gamba and colleagues, to be presented at the Royal Economic Society's annual conference at the University of Bristol in April 2017.

The authors examine the effects of a widely-reported series of fiscal audits in January 2012 in Milan by the authorities, designed to catch tax evaders in the city, compared with a similar ‘blitz’ in Genoa that was not reported as fully. The study finds that tax declarations in Milan increased by nearly 24% for that month, a total additional VAT revenue of more than €7.5 million.

‘Our results suggest that media coverage can play a crucial role – and at a low cost – in increasing tax compliance’, the authors conclude.

More…

Tax evasion is a worldwide phenomenon with significant budgetary, efficiency and equity implications. For example, it is estimated that closing the tax gap would provide resources corresponding to approximately 60% of the UK's budget deficit, 155% of the US budget deficit and 180% of the Italian budget deficit.

Italian researcher Simona Gamba, together with her co-authors Pietro Battiston, Denvil Duncan and Alessandro Santoro, has studied the effect on fiscal compliance of a series of fiscal audits (a ‘blitz’) that were held in the city of Milan on 28-29 January 2012.

Intriguingly, while blitzes are common practice in Italy, two of them, held between December 2011 and January 2012 (the Milan one, and one in the smaller town of Cortina) were unprecedented in the amount of attention they drew from the Italian media and from public opinion in general. This was not by chance, but rather due to an explicit strategy of the Italian Revenue Service to publicise its auditing operations, in order to inform taxpayers that tax declarations were indeed being monitored.

In principle, it is only reasonable to assume that information about audits having been run on other shops and commercial activities can reduce evasion; however, evidence on such link is limited.

Traditionally, both scholars studying tax evasion and tax authorities have mostly focused on the entity of fines and on the frequency of audits: the attention given to other aspects such as social pressure, nudging and media coverage constitutes a relatively recent research direction, which is now gaining momentum in part because of the interest of fiscal authorities in gaining a ‘more human’ method of operating.

By employing a confidential database of VAT declarations filed by businesses between 2009 and 2013, the researchers were able to measure the immediate and strong impact that publicity of the blitz had on declarations by taxpayers in Milan.

The researchers compare businesses in Milan with those in Genoa, another large Italian city where a blitz also took place in January 2012, but with a much lower resonance in mass media. They find that tax declarations in Milan increased by 23.7% for January 2012, for a total additional VAT revenue of €7,690,899 for that month alone, and for only the 18 business-to-client sectors considered in the analysis.

In Italy, the Milan blitz ignited a debate on whether making a spectacle of tax audits is a smart move or rather a way to antagonise taxpayers against the revenue agency. But that debate is not limited to Italy: revenue agencies all around the world are exploring different strategies, often involving communication and framing, to increase tax compliance.

The results of this study are important because they suggest that media coverage can have a crucial role (and at a low cost) in increasing tax compliance. Additional data will allow researchers from around the world to understand if such effects on fiscal compliance are only short-term or if they can be used effectively to shape the fiscal behaviour of taxpayers.

ENDS


‘The Italian Blitz: a natural experiment on audit publicity and tax compliance’
Simona Gamba, Pietro Battiston, Denvil Duncan and Alessandro Santoro

Simona Gamba:
gamba.simona@gmail.com

Pietro Battiston:
me@pietrobattiston.it