Program > Papers by author > Pappada Francesco

Fiscal consolidation and tax compliance
Francesco Pappada  1, *@  , Yanos Zylberberg  2@  
1 : Centre de recherche de la Banque de France  -  Website
Banque de France
31 rue Croix des petits champs 75001 PARIS - France -  France
2 : University of Bristol [Bristol]  -  Website
Senate House, Tyndall Avenue, Bristol BS8 1TH -  United Kingdom
* : Corresponding author

Relying on a novel measure of VAT compliance in a panel of 35 countries, we document a robust negative association between changes in tax compliance and tax rates. In order to rationalize this finding, we develop a theoretical framework where heterogeneous firms adjust the share of declared activity. We calibrate the model using firm-level data in Greece, and find large leakages following the recent fiscal consolidation. We then show how differences in financial development and the size of economic activity at the margin of informality are able to explain the heterogeneous response of tax compliance to tax rates across countries.



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