Scientific research reveals how to reduce tax evasion

In the midst of the doctrinal counterpoint, one of the most relevant investigations in recent years shows a correlation between the increase in the size of the government and the reduction of tax evasion.

Specifically, the study proves, through mathematical analysis stripped of moral or theoretical interpretations, the positive reactivity of taxpayers.

The empirical study

Published under the title “Tax evasion and government size: evidence from the Italian provinces”(1) in “Political Economy” of Bologna (Italy), the investigative work was nourished by concrete data provided by all Italian provincial administrations, although safeguarding fiscal secrecy.

Its authors Elena D’Agostino, Marco Alberto De Benedetto and Giuseppe Sobbrio, professors of economics at the universities of Calabria and Messina, in Italy, postulate and demonstrate with scientific rigor that high spending efficiency improves the “cooperative reaction”, that is, , a responsible attitude towards fiscal duties.

The study analyzes the period between 2001 and 2015 and corroborates that tax evasion decreased when the execution of budget items that contemplated the interest of broad sectors of the population, such as those related to security, well-being or transportation, increased.

The behavior of taxpayers seems to show a preference for a high level of spending but consistent with good quality. Instead, the research team discovered that evasion increased when the public spending planned from the beginning was high and of poor quality, such as if it was allocated only to bureaucracy.

Finally, they did not observe any impact when the public spending planned from the beginning remained low, while the effect was ambiguous if that same public spending was high and was only reflected in services provided to a specific sector of taxpayers.

From the information obtained, the authors concluded that public interventions more closely connected to the daily needs of many citizens had a positive impact on taxpayer behavior, while those focused on specific groups were ineffective in reducing tax evasion.

Its importance for Argentina

The correlation made between the level and destination of budget expenditures versus tax evasion in the Italian provinces allows its conclusions to be extended to globally similar contexts such as the national and provincial public administrations of the Argentine Republic.

The Italian study would make it possible to predict the impact of budget cuts on the provision or subsidy of public goods and services.

For example, if they affect those who use air transport, it would be expected that said political decision would have a smaller impact on tax collection than that which raises the price of a ticket on public transport in large urban conglomerates such as the one that makes up the Autonomous City of Buenos Aires and surrounding municipalities.

The usefulness of scientific work is also seen for the planning of public works or services.

If it is reflected in the access and provision of those to tourist centers, it would not obtain the same favorable impact as the investment in an adequate network of drinking water, sewage or pavement service in sectors of the more nourished and permanent population.

It is appropriate to bring up an example. In recent decades, multiple real estate developments have been noticed around large cities, aimed at those who choose to live in a more natural environment that is not far from their daily obligations. It implies a choice that requires sufficient financial means to solve it.

Without a doubt, it would be very useful for a provincial or municipal government to contemplate the quality of provision of goods and services that it provides to these new urban centers in order to encourage the “cooperative reaction” of those who live there.

Put in colloquial terms, if a family moves to a closed neighborhood that has electricity, gas network, drinking water, waste collection and asphalt, it is expected that there will be less tax evasion of local taxes, such as real estate or relative taxes. to lighting, sweeping and cleaning (ABL) in that segment of the population with greater contributory capacity than in those more deprived localities.

Another peculiarity of the study on the Italian provinces is that its authors observed heterogeneous behavior: an increase in public spending leads to a reduction in tax evasion only in those located in the north, characterized by a relatively higher initial level of assets. public.

For this reason, they considered that in the poorest areas, where public spending was low, the willingness of citizens to pay taxes was not the same because they understood that administrations had not historically been interested in improving the care of their basic needs.

This asymmetry would also allow its conclusions to be extended to the provinces of our country.. This is empowered by the analysis contained in the work entitled “Federal Tax Sharing returns to the center of the fiscal scene. Distribution of resources: The vertical imbalance” (2).

Its authors Marcelo Garriga and Walter Rosales, members of the Center for Argentine Political Economy of the National University of La Plata, graphed the provincial dependence on our federal tax sharing regime through the table on “Transfers to the Provinces through Co-participation and source tax collection provincial”.

In it, it is clearly observed that the provincial budgets least dependent on it and, therefore, most self-sufficient, are those of the Autonomous City of Buenos Aires, Neuquén, Chubut, Santa Cruz, Córdoba and the Province of Buenos Aires. Precisely, these are those that provide the greatest amount of public goods and services.

The authors of the scientific study that originated this article boast of the contribution they made to the literature on political economy by considering that they demonstrated that tax evasion would be reduced through an increase in public spending where the intervention of provincial governments is stronger.

Thus, they inferred that citizens would perceive there that the quality of public goods provided is an important factor that mitigates the impact of public spending on tax evasion. On the other hand, they highlighted that a government could also unintentionally contribute to motivating citizens to evade paying taxes when they do not satisfy the general interest due to the way in which it spends its resources.

Corollary

The usefulness of the research work reviewed for our political organization is seen in cultural and economic similarities, among other particularities. Without detracting from its importance, I attribute greater importance to another legal reason: our National Constitution reserves to the provinces, municipalities and the Autonomous City of Buenos Aires a broad distribution of powers in its articles 5, 75, 121 to 125 and 129 both in matter of resources as well as specific responsibilities.

In this line of thought, the conclusions outlined by the work are also a very useful prism to analyze the incidence of the current expenses of our local jurisdictions as well as their capital investments.

It would be expected that a “present State” would encourage the commitment of taxpayers not to evade their tax obligations if they improve security, jurisdictional public transportation, pavement, effluent treatment, provision of drinking water, local energy network or public health by favorably impacting in the general interest of the population.

In this way, we can conclude that the aforementioned research strengthens the assertion attributed to the North American judge Oliver Wendell Holmes Jr.: “Taxes are the price we pay to live in a civilized society. I like paying taxes. With them, I acquire civilization.”

Lawyer

(1) D’Agostino E, De Benedetto MA, Sobbrio G. Tax evasion and government size: evidence from Italian provinces. Econ Polit (Bologna). 2021;38(3):1149-1187. doi:10.1007/s40888-021-00227-7. Epub 2021 Apr 2. PMID: 35422597; PMCID: PMC8017438.

(2) Published on 07/24/2023 on the website of the Center for Argentine Political Economy of the National University of La Plata