Parallel session IARIW 2014

1. Using administrative and survey
data to analyse tax evasion from
unregistered labour
Alessandra Coli
(Universitá di Pisa)
Francesca Tartamella
(Istituto Nazionale di Statistica - ISTAT)
Discussed by:
Olga Cantó
(Universidad de Alcalá and EQUALITAS)

2. Motivation
• Underground (or hidden) economy appears to be a significant
part of GDP in many developed countries.
• Weight of underground economy is unequally distributed by:
country, individual and household characteristics, job
characteristics, household income level, etc…
• Any analysis using administrative data and simulating the
impact of a policy relies on the validity of registered data on
taxes, benefits and/or labour, e.g. fiscal or labour policy reforms.

3. Aim
• The aim of this paper is to identify missing (non-registered) workers
(employees and self-employed) in administrative Italian data and
estimate their earnings using the information provided in Household
Budget Surveys.
This allows authors to provide:
• A proxy measure of tax evasion (incidence and intensity) from non-registration
in the labour market.
• A detailed description of the personal characteristics of non-registered
workers (and also those of their job).
• A detailed description of the distribution of the incidence and income
relevance of non-registered labour along the household income
distribution.

4. Sources of underground
economy
• In official statistics, non-observed economy (NOE) includes the following
kinds of production (OECD, 2002)
1) underground or hidden production
2) legal production activities characterized by a low level of organization
(informal economy)
3) production from illegal economy
4) productions omitted due to deficiencies in the basic data collection system
(statistic underground).
• However, large part of underground economy accounted for in GDP but
missed elsewhere. Tax records related to IT or VAT (fiscal authorities),
Social Security labour registration data related to SSC (labour authorities)
– Italian method to measure NOE assumes hidden economy: i) the use of non-registered
labour ii) the under-reporting of turnover, due to the under-reporting of legal production
and/or over-reporting of intermediate costs
• Stylized fact: National accounts data for Italy measure non-registered
(hidden) labour relevance in a 6.5% of GDP.

5. Methodology
• Using Italian SILC 2011 (Survey of Income and Living Conditions
Survey) household budget data and a variety of Social Security data
individuals are linked (Italian Fiscal Code), Exact Record Linkage
Procedure.
• Registered= has income from labour (employee or self-employed) in
2010 (SILC) and is present in a SS file. Non-registered= has income
from labour (employee or self-employed) but is not present in any SS
file.
Table 2: IT-Silc individuals and their presence/ absence in the administrative archives.
Percentage values, Italy 2010.
Employed in Administrative sources
No Weak Strong Total presence in Adm. Sources
Employed in
IT-Silc
No 0.0 5.9 2.5 8.4
Yes 9.5 8.8 73.3 91.6
Total presence in It-Silc 9.5 14.7 75.8 100.0
* 100% represents the number of IT-Silc employed persons, plus the number of IT-Silc non-employed persons
that find at least one link in the administrative archives.

6. Methodology
• To describe the characteristics of registered labour vs. non-registered
labour authors use a logistic regression of the probability of being
registered for individuals over 16 years of age who earn labour
income in 2010: “propensity to be a registered worker instead of a
non-registered worker”
• To measure the incidence of having incomes from non-registered
labour within total household income and its subcomponents:
– Authors provide a descriptive analysis of the characteristics of households with at
least one non-registered by income quintile.
– Authors provide a descriptive comparative analysis of households with at least one
non-registered and all households: by household’s income quintile, hh. main source
of income, geographical area and hh. head age

7. Results
• Non-registered workers: 9.5% of total Italian SILC workers (receiving
income from labour in 2010) [with higher presence among employees (about 60%
of non-registered workers are employees)]. These values are in line with the
National Accounts statistics: ISTAT (2011) estimates non-registered
work in Italy as 10.3% in terms of employed persons and 17% in
terms of jobs.
• Non-registered workers are, ceteris paribus, more likely to be male
than female, relatively old than young, foreign than Italian, living in
the South and working in small farms. Their individual and hh.
disposable income is relatively low.
• Household surveys capture at least a part of underground economy
components (some non-registered workers may not declare to be
receiving labour income in 2010). Results support that Administrative
sources be more extensively combined with micro data from
households surveys to improve data coherence.

8. Discussion
• There is a large room for motivation improvement:
– Why Italy? Other EU countries evidence?
– Any differences Italy vs. Others in underground economy (tax, labour)?
– Need to indicate potential use of this measurement and its caveats and
problems if any (adoption of ESA 2010… describe uses!)
– Extend motivation!
• There is a large room for previous evidence improvement in
Italy and elsewhere:
– Any evidence on estimating hidden labour in developed countries?
– Incidence of non-registration in EU+Italian labour market?
– Any other methodologies used in previous works?
– In general: put the paper in context!!!

9. Discussion
• General comments to the paper:
– The paper needs a general re-writing to focus on main issues.
– Identify more clearly the actual potential use of their methodology.
Probably most useful to improve the quality of Administrative data so that
ISTAT so can provide information to Social Security…but…will then
individuals continue to answer SILC?...
– It is very important to make a difference between incidence of non-registered
work and the dimension of tax evasion through undeclared
wages. [The reference data is SILC. These data are known to
underestimate household incomes in National Accounts in Spain and
overestimate them in Greece. How is author’s work affected by this?
From your results it appears that still 40% of wages are missing…. As
authors point out: “A significant amount of self-employed hidden income
stems from the under-reporting of turnover”]
Thus, author’s method seems good to identify incidence…but not so
much regarding its intensity (wage underreporting issues in household
surveys…differences by household income level??)

10. Discussion
• General comments to the paper:
– The incidence of non-registered labour is quite uniform in terms of hh. income
group! Look at the distribution by hh. income quintile, differences appear in
intensity and not in incidence.
– How can education not be a relevant determinant of being registered?

11. Discussion
• Minor comments:
– In the text you say that the probability of being registered falls with income but I
believe it is just the opposite.
– At a variety of points in the paper (specially in Tables) it is unclear if results are
referred to individuals or households, do revise that.