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Tax Compliance With Two-Sided Uncertainty

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  • Mark B. Cronshaw

    (University of Colorado at Boulder)

  • James Alm

    (University of Colorado at Boulder)

Abstract

Does government concealment of its audit policies increase or decrease taxpayer compliance? This article analyzes the impact of uncertainty about government audit policies on compliance using a game-theoretic model. The taxpayer is assumed to possess private information about his or her income, but does not know the tax agency's true audit capabilities. Similarly, the tax agency is assumed to possess private information about its audit technology (e.g., the cost of an audit or the probability that an audit will discover unreported income), but does not know a taxpayer's true income. The equilibrium of this game with two-sided uncertainty is determined and analyzed. The equilibrium is also compared to that of a game in which the taxpayer knows the tax agency's audit parameters. The results show that uncertain audit policies may well lead to less compliance, so that a government policy of concealment may be counterproductive.

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Bibliographic Info

Article provided by in its journal Public Finance Review.

Volume (Year): 23 (1995)
Issue (Month): 2 (April)
Pages: 139-166

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Handle: RePEc:sae:pubfin:v:23:y:1995:i:2:p:139-166

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Cited by:
  1. Kim, Sangheon, 2008. "Does political intention affect tax evasion?," Journal of Policy Modeling, Elsevier, Elsevier, vol. 30(3), pages 401-415.
  2. Philipp Meyer-Brauns, 2014. "Optimal Auditing with Heterogeneous Audit Perceptions," Working Papers, Max Planck Institute for Tax Law and Public Finance tax-mpg-rps-2014-06, Max Planck Institute for Tax Law and Public Finance.
  3. James, Simon & Edwards, Alison, 2010. "An annotated bibliography of tax compliance and tax compliance costs," MPRA Paper 26106, University Library of Munich, Germany.
  4. Simone Pellegrino & Massimiliano Piacenza & Gilberto Turati, 2008. "The Runaway Taxpayer or: Is Prior Tax Notice Effective against Scofflaws?," Working papers, Former Department of Economics and Public Finance "G. Prato", University of Torino 1, Former Department of Economics and Public Finance "G. Prato", University of Torino.
  5. Lang, Matthias & Wambach, Achim, 2013. "The fog of fraud – Mitigating fraud by strategic ambiguity," Games and Economic Behavior, Elsevier, Elsevier, vol. 81(C), pages 255-275.

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