Simplified tax regime and poverty trap for micro-sized firms in Italy - A numerical simulation and empirical study with Italian firms’ data

Taxation burden and bureaucracy slowness are an Italian leitmotiv: the country is fiscally complex, and this complexity raises costs for firms, especially the smallest ones, which are living up to low margins. Following an introduction and a literature review, this work presents a theoretical model in which the taxation regime could systematically present a threshold above which firms are disincentivized to grow, resulting in a so-called "low productivity trap", hindering competition and overall improvement in the economy. In a subsequent, empirical section, two different datasets with information on micro, small and medium businesses (revenues, taxation regimes and tax expenditures, employee number and other factors such as productivity) are employed to evaluate the hypotheses.