Anatomy of social security contribution evasion in Italy

Author/s Vincenzo Alfano
Publishing Year 2020 Issue 2020/2
Language English Pages 31 P. 7-37 File size 219 KB
DOI 10.3280/EP2020-002001
DOI is like a bar code for intellectual property: to have more infomation click here

Below, you can see the article first page

If you want to buy this article in PDF format, you can do it, following the instructions to buy download credits

Article preview

FrancoAngeli is member of Publishers International Linking Association, Inc (PILA), a not-for-profit association which run the CrossRef service enabling links to and from online scholarly content.

This work presents an estimate of social security contribution evasion (SSCE) for different job categories and job sectors in Italy, among 1995 and 2016. The evasion is computed as share of the work-force that did not pay social security contribution, not as monetary evasion. The author finds a stationary trend in the size of the SSCE over time, and some significative differences in the different sectors and in the different Italian regions. The average SSCE for Italy in the 1995-2016 period is 0.149, an evasion of around 15 percent of the workforce in the social security contributions of a representative sample of Italian population, calculated on over 26,000 observations. SSCE is a well-known issue all around the world. It is a highly sensitive topic, and it is been suggested that given the aging of the population and the increasing flexibility of the work, its importance is going to increase. It is particularly interesting in a country such as Italy, where there is a huge underground economy that affects the country. Even though economists have studied the determinant and the effect of tax evasion (Allingham and Sandmo, 1972) since half a century, very few works have specifically focused on the implication of contribution evasion for social security schemes (Bailey, 2001; McGillivray, 2002) and on the determinants of contribution evasion (Bailey, 1997), especially with a quantitative approach. This work aims to contribute to the literature on SSCE, which has his own specificities that makes it different from tax evasion, offering a series of descriptive statistics on SSCE in Italy in the last twenty years. The two main goals of this study are to estimate SSCE in Italy for the different job categories, in different work sectors and in all the Italian regions between 1995 and 2016 and to provide some insights about the main causes of SSCE. In a nutshell, the findings of the author show that the highest SSCE is among self-employed and temporary worker active in the household services, building and agriculture sectors. Instead for the geographical distribution concerns, Southern Italian regions register a higher SSCE than Centre and North of Italy. The trend over the period 1998-2016 of SSC evasion is pretty much stable, while there is a gap with the 1995 estimate.

Keywords: Social security, evasion, social security contribution evasion, Italy

Jel codes: E26, H20, H55

  1. Allingham M. G. and Agnar S. (1972). Income tax evasion: a theoretical analysis. Journal of Public Economics, 1(3-4): 323-338.
  2. Bailey C. and Turner J. (1997). Contribution evasion and social security: causes and remedies. In: Oficina de la OIT --
  3. Bailey C. and Turner J. (2001). Strategies to reduce contribution evasion in social security financing. World Development, 29(2): 385-393.
  4. Baumann F., Tim F., and Jansen M. (2009). On the Economics of Contribution Evasion. FinanzArchiv: Public Finance Analysis, 65(2): 162-177.
  5. Boeschoten W. C. and Fase M. M. G. (1984). The Volume of Payments and the Informal Economy in the Netherlands 1965-1982. Tech. rep. Dordrecht: M. Nijhoff.
  6. Cagan P. (1958). The Demand for Currency Relative to the Total Money Supply. Journal of Political Economy, 66(4): 303. DOI: 10.1086/258056
  7. Capasso S. and Jappelli T. (2013). Financial development and the underground economy. Journal of Development Economics, 101(1): 167-178.
  8. Contini B. (1981). Labor Market Segmentation and the Development of the Parallel Economy-The Italian Experience. Oxford Economic Papers, 33(3): 401-12.
  9. Contini B (1981). The second economy of Italy. In: The underground economy in the United States and abroad (1982), pp. 199-208.
  10. De Gregorio C. and Giordano A. (2015). The heterogeneity of irregular employment in Italy: some evidence from the Labour force survey integrated with administrative data, ISTAT, Working Paper 1/2015.
  11. Del Boca D. (1981). Parallel economy and Allocation of Time. Micros: Quarterly Journal of Microeconomics, 4(2): 13-18.
  12. Del Boca D. and Francesco F. (1982). Recent Empirical Surveys and Theoretical Interpretations of the Parallel Economy in Italy. In: The Underground Economy in the United States and Abroad. Tech. rep.: 1960-78.
  13. Dell’Anno R. and Schneider F. (2003). The Shadow Economy of Italy and other OECD Countries: What do we know? Journal of public finance and public choice Economia delle scelte pubbliche, 21: 97-120.
  14. Enoff L. D., McKinnon R. (2011). Social security contribution collection and compliance: improving governance to extend social protection. International Social Security Review, 64(4): 99-120.
  15. Feige E. L. (1979). How big is the irregular economy? Challenge, 22(5): 5-13.
  16. Feige E. L. (1989). The Underground Economics. Tax Evasion and Information Distortion. Cambridge University Press, 154(3): 487.
  17. Feige E. L. (1996). Overseas holdings of US currency and the underground economy.
  18. Feld L. P. and Schneider F. (2010). Survey on the shadow economy and undeclared earnings in OECD countries. German Economic Review, 11(2): 109-149.
  19. Frey B. S. and Pommerehne W. W. (1984). The hidden economy: State and prospects for measurement. Review of Income and Wealth, 30(1): 1-23.
  20. Frey B. S. and Weck-Hannemann H. (1983). Estimating the Shadow Economy: A ‘Naive’ Approach. Oxford Economic Papers, 35: 23-44.
  21. Frey B. S. and Weck-Hannemann H. (1984). The hidden economy as an “unobserved” variable. European Economic Review, 26(1): 33-53.
  22. Gutmann P. M. (1977). The subterranean economy. Financial Analysts Journal, 33(6): 26-34.
  23. Johnson S., Kaufmann D., and Shleifer A. (1997). The Unofficial Economy in Transition. Brookings papers on economic activity, 2: 159-239.
  24. Kaliberda A. and Kaufmann D. (1996). Integrating the Unofficial Economy into the Dynamics of Post-Socialist Economies: A Framework of Analysis and Evidence.
  25. Lacko M. (2000a). Do power consumption data tell the story? Electricity intensity and hidden economy in post-socialist countries. In: Planning, shortage and transformation: Essays in honor of Janos Kornai., pp. 43-60.
  26. Lacko M. (2000b). Hidden Economy – an Unknown Quantity? Comparative Analysis of Hidden Economies in Transition Countries, 1989-95. Economics of Transition, 8(1): 117-149.
  27. Lacko M. (2006). Tax Rates with Corruption: Labour-market Effects. Empirical Cross-country Comparisons on OECD Countries. In: IEHAS Discussion Papers.
  28. Langfeldt E. The unobserved economy in the Federal Republic of Germany. In: Feige E. L., ed., The Unobserved Economy (pp. 236-260). Cambridge: Cambridge University Press.
  29. Lizzeri G. (1979). Mezzogiorno in Controluce. Naples: Enel.
  30. Macafee K. (1982). A glimpse of the hidden economy in the national accounts of the United Kingdom. In: The underground economy in the United States and abroad.
  31. Mcgillivray W. (2001). Contribution evasion: Implications for social security pension schemes. International Social Security Review, 54(4): 3-22.
  32. McGillivray W. (2002). Contribution evasion: Implications for social security pension schemes. International Social Security Review, 54(4).
  33. Neri A. and Ranalli M. G. (2012). To misreport or not to report? The measurement of household financial wealth. In: Temi di discussione (Working papers) 870: 1-28.
  34. O’ Higgins M. (1989). Assessing the Underground Economy in the United Kingdom. In: The underground economies: tax evasion and information distortion. Cambridge University Press, Chap. 7: 175-195.
  35. O’ Neill D. M. (1983). Growth of the underground economy, 1950-81: some evidence from the current population survey: a study prepared for the use of the Joint Economic Committee, Congress of the United States. Washington.
  36. Park T. (1979). Reconciliation between personal income and taxable income. Tech. rep.: 1947-1977.
  37. Perotti V. (2012). Contribution Evasion and Expected Survival: Evidence from Bulgaria. Review of Development Economics, 16(4): 624-639.
  38. Petersen H.-G. (1982). Size of the Public Sector, Economic Growth and the Informal Economy: Development Trends in the Federal Republic of Germany. Review of Income and Wealth, 2(82): 191-215.
  39. Portes A. (1996). The Informal Economy. In: Exploring the Underground Economy: Studies of Illegal and Unreported Activity. W.E. Upjohn Institute, pp. 147-165.
  40. Putnam R. (1993). Making Democracy Work: Civic Traditions in Modern Italy. Princeton: Princeton University Press.
  41. Ramella F. (1994). L’area rossa. In: Diamanti I. and Mannheimer R., eds., Milano a Roma (pp. 99-108). Roma: Donzelli.
  42. Schneider F. (1994). Can the shadow economy be reduced through major tax reforms? An empirical investigation for Austria. Public Finance, 49(S): 137-152.
  43. Schneider F. (2005). Shadow economies around the world: What do we really know?.
  44. Schneider F. (2006). Shadow Economies and Corruption all over the World: What do we really Know?. --
  45. Schneider F., Buehn A. and Montenegro C. (2010). New Estimates for the Shadow Economies all over the World. International Economic Journal, 24(4): 443-461. DOI: 10.1080/10168737.2010.525974
  46. Smith J. D. (1985). Market Motives in the Informal Economy. In: The Economics of the Shadow Economy SE – 10. Vol. 15 (pp. 161-177). Berlin Heidelberg: Springer, DOI: 10.1007/978-3-642-88408-5_10
  47. Smith P. (1994). Assessing the size of the underground economy: The Canadian Statistical Perspectives. Canadian Economic Observer, 3(11-010): 16-33.
  48. Tanzi V. (1980). The Underground Economy in the United States: Estimates and Implications. Quarterly Review, Banca Nazionale del Lavoro (Rome), 135 (December): 427-53; reprinted In: Tanzi V., ed., (1982). The Underground Economy in the United States and Abroad (pp. 69-92). Lexington, MA: Lexington Books.
  49. Tanzi V. (1983). The Underground Economy in the United States: Annual Estimates, 1930-80, Staff Papers, International Monetary Fund (Washington), 30 (June): 283-305.

Vincenzo Alfano, Anatomy of social security contribution evasion in Italy in "ECONOMIA PUBBLICA " 2/2020, pp 7-37, DOI: 10.3280/EP2020-002001