Tax Professionals and Tax Evasion

Abstract Using unique data covering the entire population of sole proprietorships in Italy with their respective audit files, we examine the role of tax advisors in tax compliance. Exploiting quasi-random variation in audit policy, we document that tax advisors act as information hubs, gathering privileged information on the auditing policy from their activities and incorporating it into the tax return strategy of their clients. The heterogeneity in tax advisors’ willingness to serve this role establishes a market for intermediated tax evasion, in which taxpayers sort themselves on the basis of the tax advisors’ tolerance for it.