Fiscal decentralization, income inequality and tax evasion. An experimental study.

Marco Faillo (University of Trento)
Sandro Casal (University of Trento)
Luigi Mittone (University of Trento and LUT School of Business and Management.)

Abstract

This paper addresses the issue of fiscal decentralization, with the aim of verifying whether, in a tax evasion game, tax compliance varies with changes in i) the income level of taxpayers and ii) the share of tax revenue retained at the local level (where taxes were paid) rather than redistributed globally. Preliminary results show that a high level of tax revenue redistribution (with the revenue collected from wealthier taxpayers predominantly funding a global public good compared to the funding derived from poorer taxpayers), it reduces the level of tax compliance, a phenomenon (likely) linked to the role of expectations that both poorer and wealthier taxpayers have regarding the contributions of the other group.

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