The paper examines the market externalities caused by tax evasion. To identify these effects, we use a specific measure of revenue manipulation, defined by the number of individual firms positioning themselves just below the thresholds that give them access to preferential tax regimes. We then analyse the impact of this behaviour on other firms operating in the same municipalities and sectors.
A change in the number of individual firms manipulating their revenues, driven by changes in the characteristics of a preferential tax regime, is associated with a decrease in the revenues of other firms operating in the same markets, particularly smaller ones. This negative impact also extends to the labour market, with reductions in both the number of employees and the wages of competitor firms, as well as a decline in overall productivity.
