Examining the Impact of the Italian Tax System on the Nature and Extent of the Unobserved Economy and Undeclared Work

This paper examines the influence of the Italian tax system on the characteristics and extent of the unobserved economy and undeclared work. Recognising the complexity and heterogeneity of the phenomenon under study, the first part of the paper examines the definitions and classifications used to describe it. The current spatial and temporal extent of undeclared work and its determinants are also examined. The second part reviews the strategies and measures implemented to combat undeclared work in Italy over the last forty years. Strategies and measures are distinguished according to their nature (direct and indirect) and the approach adopted (contractual and fiscal). Finally, the third part aims to study the impact of the tax reforms that have changed the discipline of the personal income tax (IRPEF) and the value added taxes (VAT and IRAP) applied in Italy in order to reduce the so-called “tax wedge on labour” and, more generally, the incentives for tax evasion and undeclared work. By examining the relationship between tax policy and undeclared economic activity, we can identify effective strategies to improve tax compliance and promote sustainability. This paper will provide insights for future research in this area.