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Tax Evasion and Auditing in a Federal Economy

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Author Info
Sven Stö ()
Christian Traxler ()

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Abstract

This paper analyzes the relation between tax auditing and fiscal equalization in the context of fiscal competition. We incorporate a model of tax evasion by firms into a standard tax competition framework where regional governments use their audit rates as a strategic instrument to engage in fiscal competition. We compare the region’s choice of audit policies for three different cases: A scenario of unconfined competition without interregional transfers, a scenario with a gross revenue equalization (GRS) scheme and finally, a scenario with net revenue sharing (NRS), where not only the revenues from taxation but also the regions auditing costs are shared. Without regional transfers, fiscal competition leads to audit rates which are inefficiently low for revenue-maximizing governments. While in general GRS aggravates the inefficiency, NRS makes the decentralized choice of auditing policies more efficient. Copyright Springer Science + Business Media, Inc. 2005

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File URL: http://hdl.handle.net/10.1007/s10797-005-1542-0
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Publisher Info
Article provided by Springer in its journal International Tax and Public Finance.

Volume (Year): 12 (2005)
Issue (Month): 4 (August)
Pages: 515-531
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Handle: RePEc:kap:itaxpf:v:12:y:2005:i:4:p:515-531

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Web page: http://www.springerlink.com/link.asp?id=102915

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Related research
Keywords: tax evasion; fiscal competition; fiscal equalization; auditing;

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Reinganum, Jennifer F & Wilde, Louis L, 1986. "Equilibrium Verification and Reporting Policies in a Model of Tax Compliance," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 27(3), pages 739-60, October. [Downloadable!] (restricted)
  2. Crabbé, Karen & Janssen, Boudewijn & Vandenbussche, Hylke, 2004. "Is There Regional Tax Competition? Firm Level Evidence for Belgium," CEPR Discussion Papers 4721, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  3. Wildasin, David E., 1989. "Interjurisdictional capital mobility: Fiscal externality and a corrective subsidy," Journal of Urban Economics, Elsevier, vol. 25(2), pages 193-212, March. [Downloadable!] (restricted)
  4. Kanbur, Ravi & Keen, Michael, 1993. "Jeux Sans Frontieres: Tax Competition and Tax Coordination When Countries Differ in Size," American Economic Review, American Economic Association, vol. 83(4), pages 877-92, September. [Downloadable!] (restricted)
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  5. Cremer, Helmuth & Gahvari, Firouz, 1993. "Tax evasion and optimal commodity taxation," Journal of Public Economics, Elsevier, vol. 50(2), pages 261-275, February. [Downloadable!] (restricted)
  6. Slemrod, Joel & Yitzhaki, Shlomo, 1987. " The Optimal Size of a Tax Collection Agency," Scandinavian Journal of Economics, Blackwell Publishing, vol. 89(2), pages 183-92.
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  7. Massimo Bordignon & Paolo Manasse & Guido Tabellini, 2001. "Optimal Regional Redistribution under Asymmetric Information," American Economic Review, American Economic Association, vol. 91(3), pages 709-723, June. [Downloadable!] (restricted)
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  8. Christian Baretti & Bernd Huber & Karl Lichtblau, 2002. "A Tax on Tax Revenue: The Incentive Effects of Equalizing Transfers: Evidence from Germany," International Tax and Public Finance, Springer, vol. 9(6), pages 631-649, November. [Downloadable!] (restricted)
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Alexander Libman & Lars P. Feld, 2007. "Strategic Tax Collection and Fiscal Decentralisation: The Case of Russia," CREMA Working Paper Series 2007-09, Center for Research in Economics, Management and the Arts (CREMA). [Downloadable!]
    Other versions:
  2. Christian Traxler & Andreas Reutter, 2008. "Apportionment, Fiscal Equalization and Decentralized Tax Enforcement," Working Paper Series of the Max Planck Institute for Research on Collective Goods 2008_21, Max Planck Institute for Research on Collective Goods. [Downloadable!]
  3. Werner Güth & Vittoria Levati & Rupert Saugruber, 2005. "Tax morale and (de-)centralization: An experimental study," Public Economics 0511014, EconWPA. [Downloadable!]
    Other versions:
  4. Traxler, Christian, 2006. "Voting over Taxes: The Case of Tax Evasion," Discussion Papers in Economics 1188, University of Munich, Department of Economics. [Downloadable!]
    Other versions:
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