Lorenzo Casaburi & Ugo Troiano (both of Harvard University, Department of Economics), House Ghost-Busters: The Political Economy of a Large Anti-Tax Evasion Intervention:

We study the political returns to local administrators of a large anti tax evasion program (“Ghost Buildings”) in Italy. We use novel data collected by the Italian Territorial Agency containing the number of unauthorized buildings in each town, coded by comparing cadastral maps and high resolution aerial pictures of Italian municipalities. First, we provide a new highly disaggregated measure of estimated tax evasion and analyze its socio-economic determinants at town-level. Second, we look at the impact of the program, and subsequent regularization activities, on incumbent mayor re-election likelihood. The program provides a unique opportunity for local administrators to enforce tax evasion while significantly lowering the costs of tax enforcement. Mayors have an important role in checking the data reported by the program, and enforcing tax evasion in the verified illegal buildings. We use the publication of the lists and cross-town heterogeneity in the intensity of unauthorized buildings to implement a difference in difference approach. Using estimates from our preferred specification, we find that, following publication, a one s.d. increase in baseline intensity of unauthorized buildings raises the likelihood of reelection by 2.7 percentage point (relative to pre-publication elections), 7.5% of the sample mean. An instrumental variable approach, which exploits the fact that list publication occurs in four different waves with a strong provincial clustering, confirms the results. Finally, we provide suggestive evidence that it is the intensity of regularization activities following the implementation of the program that drives the result. Our results suggest that fighting tax evasion could potentially be a good strategy for politicians that want to be reelected.”