Anti-evasion auditing policy in thepresence of common income shocks
AbstractWhen fairly homogeneous taxpayers are affected by common incomeshocks, a tax agency's optimal auditing strategy consists of auditing alow-income declarer with a probability that (weakly) increases with theother taxpayers' declarations. Such policy generates a coordination gameamong taxpayers, who then face both strategic uncertainty - about theequilibrium that will be selected.and fundamental uncertainty - about thetype of agency they face. Thus the situation can be realistically modelledas a global game that yields a unique and usually interior equilibriumwhich is consistent with empirical evidence.Results are also applicable to other areas like regulation or welfarebenefit allocation.
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Bibliographic InfoPaper provided by Suntory and Toyota International Centres for Economics and Related Disciplines, LSE in its series STICERD - Distributional Analysis Research Programme Papers with number 80.
Date of creation: Feb 2006
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Web page: http://sticerd.lse.ac.uk/_new/publications/default.asp
Keywords: Tax Evasion; Coordination/Global Games; Expectations; Asymmetric Information;
Find related papers by JEL classification:
- H26 - Public Economics - - Taxation, Subsidies, and Revenue - - - Tax Evasion
- D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
- D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations
- C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
This paper has been announced in the following NEP Reports:
- NEP-ACC-2006-10-28 (Accounting & Auditing)
- NEP-ALL-2006-10-28 (All new papers)
- NEP-PBE-2006-10-28 (Public Economics)
- NEP-REG-2006-10-28 (Regulation)
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