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Lessons from Italian Ghost Houses: Does informality deter tax progressivity?
This research studies whether reducing informality by tackling tax evasion leads policy makers to set more progressive taxes. Professor Rubilino takes advantage of an Italian policy that generated cross-municipality variation in the scope for tackling income and property tax evasion through stricter tax enforcement. The results show that the ability of the government to change the size of the informal sector tips the balance in favor of higher statutory tax rates for middle and top earners, lower for the poor. As a result of larger tax collections, municipalities hired more workers and raised public spending. These results suggest that policies enforcing legal rules and payment of taxes have not only the power to foster tax capacity, but also to enhance the ability to pursue redistributive policies.

May 26, 2022 12:00 PM in Eastern Time (US and Canada)

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