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LIMITED COMMITMENT TO ENFORCEMENT AND THE EVOLUTION OF TAX COMPLIANCE.A SUGGESTED INTERPRETATION OF THE MEZZOGIORNO PROBLEM.

We study a model of tax evasion dynamics in the presence of an enforcementexternality due to limited commitment by the state in the allocation ofresources to fiscal jurisdictions. Taxpayers rationally decide theircompliance behavior given they do not have precise information about theprobability of apprehension, but learn it over time following a simplesocial learning mechanism, based on their experience.We analyse the conditions under which the distribution of the perceivedprobability of apprehension and compliance behavior converge to one ormultiple steady states and whether convergence features history dependence.We show that the emergence of steady state multiplicity crucially depends onthe level of tax evasion compared to a measure of efficiency in theenforcement process.The results from the model are used to propose an interpretation for thehigh levels of geographical dispersion of compliance behavior in Italy andits persistence, as an alternative to other views based on heterogeneity inthe endowment of social capital or other structural characteristics. To lendsupport to this interpretation we document the importance of the localdimension in the composition of the judiciary branch of the tax enforcementsystem in Italy since the unification of the state. A simple analysis of a novel data set from the Italian Revenue Agency alsolends support to our interpretation of the North-South divide in Italy asthe outcome of an institutional trap in the fiscal administration.