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The “emersion” effect: an ex post and ex ante social program evaluation on labor tax evasion in Italy

Di Porto, Edoardo and Elia, Leandro and Tealdi, Cristina The “emersion” effect: an ex post and ex ante social program evaluation on labor tax evasion in Italy. EIC working paper series #2/2013 IMT Institute for Advanced Studies Lucca ISSN 2279-6894.

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We analyze how different policy interventions may incentive the transition of workers from the informal to the formal sector. We use Italian data over the period 1998-2008 to evaluate ex post whether the 2003 Italian labor market reform was able to reach the objective to reduce the share of shadow employment. Based on our empirical results, we develop an ex ante evaluation based on a search and matching model, á la Mortensen and Pissarides to determine the right combination of policy interventions which may be effective in generating a significant reduction in undeclared work together with an expansion of the formal sector. We find that in an economy where permanent and temporary contracts coexist, the combination of lower payroll taxes for permanent jobs and higher probability of being audited generates a compression of the informal sector, leaving unemployment unchanged. A similar result can be obtained through a reduction of the firing cost associated with permanent jobs, even though this causes temporary contracts to increase relatively more than permanent contracts.

Item Type: Working Paper (EIC working paper series)
Uncontrolled Keywords: Labor tax evasion, temporary contracts, firing costs, search frictions, policy evaluation. - JEL Classification: J38, J63, J64, H26
Subjects: D History General and Old World > DG Italy
H Social Sciences > HB Economic Theory
H Social Sciences > HD Industries. Land use. Labor
Research Area: Economics and Institutional Change
Depositing User: Ms T. Iannizzi
Date Deposited: 25 Jun 2013 13:16
Last Modified: 25 Jun 2013 13:16
URI: http://eprints.imtlucca.it/id/eprint/1623

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