Tax Compliance by Firms and Audit Policy
AbstractFirms are usually better informed than tax authorities about market conditions and the potential profits of competitors. They may try to exploit this situation by under-reporting their own taxable profits. The tax authority could offset firms' informational advantage by adopting "smarter" audit policies that take into account the relationship between a firm's reported profits and reports for the industry as a whole. Such an audit policy will create an externality for the decision makers in the industry and this externality can be expected to affect not only firms' reporting policies but also their market decisions. If public policy takes into account wider economic issues than just revenue raising what is the appropriate way for a tax authority to run such an audit policy? We develop some clear policy rules in a standard model of an industry and show the effect of these rules using simulations.
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Bibliographic InfoPaper provided by University of Adelaide, School of Economics in its series School of Economics Working Papers with number 2010-23.
Length: 31 pages
Date of creation: Oct 2010
Date of revision:
tax compliance; evasion; oligopoly;
Other versions of this item:
- Ralph Bayer & Frank A Cowell, 2010. "Tax Compliance by Firms and Audit Policy," STICERD - Distributional Analysis Research Programme Papers 102, Suntory and Toyota International Centres for Economics and Related Disciplines, LSE.
- H20 - Public Economics - - Taxation, Subsidies, and Revenue - - - General
- H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
This paper has been announced in the following NEP Reports:
- NEP-ACC-2010-10-16 (Accounting & Auditing)
- NEP-ALL-2010-10-16 (All new papers)
- NEP-CMP-2010-10-16 (Computational Economics)
- NEP-PUB-2010-10-16 (Public Finance)
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