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Auditing with Signals

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Author Info

  • Inés Macho-Stadler

    (Universitat Autònoma de Barcelona)

  • David Pérez-Castrillo

    (Universitat Autònoma de Barcelona)

Abstract

We analyse the value of information that can be used to improve the audit selection to better target the tax gap. We consider a tax authority allocating resources in an attempt to identify the taxpayers who are underreporting with more probability and to increase voluntary compliance. In a simple model, we discuss the optimal enforcement policy when the tax authority decides its auditing strategy before the taxpayers fill their report, and identify some results that contrast with the literature on optimal auditing when no signal, in addition to the tax return, is considered. In particular, we discuss the relationship between effective tax progressivity and the informational content of the signal.

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File URL: http://www.econ.ku.dk/cie/dp/dp_1997-1999/1999-08.pdf/
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Bibliographic Info

Paper provided by University of Copenhagen. Department of Economics. Centre for Industrial Economics in its series CIE Discussion Papers with number 1999-08.

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Length: 29 pages
Date of creation: Jun 1999
Date of revision:
Publication status: Published in: Economica, 69(273) pp 1-20, 2002
Handle: RePEc:kud:kuieci:1999-08

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Keywords: auditing; signals; tax progressivity;

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References

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  1. Alm, James & Bahl, Roy & Murray, Matthew N., 1993. "Audit selection and income tax underreporting in the tax compliance game," Journal of Development Economics, Elsevier, vol. 42(1), pages 1-33, October.
  2. Sanchez, Isabel & Sobel, Joel, 1993. "Hierarchical design and enforcement of income tax policies," Journal of Public Economics, Elsevier, vol. 50(3), pages 345-369, March.
  3. repec:att:wimass:9610 is not listed on IDEAS
  4. Eduardo Engel & James Hines, 2000. "Understanding Tax Evasion Dynamics," Econometric Society World Congress 2000 Contributed Papers 1117, Econometric Society.
  5. Chander, Parkash & Wilde, Louis L, 1998. "A General Characterization of Optimal Income Tax Enforcement," Review of Economic Studies, Wiley Blackwell, vol. 65(1), pages 165-83, January.
  6. Andreoni, J. & Erard, B. & Feinstein, J., 1996. "Tax Compliance," Working papers 9610r, Wisconsin Madison - Social Systems.
  7. Jorge Martinez-Vazquez & Mark Rider, 2003. "Multiple Modes of Tax Evasion: Theory and Evidence from the TCMP," International Center for Public Policy Working Paper Series, at AYSPS, GSU paper0306, International Center for Public Policy, Andrew Young School of Policy Studies, Georgia State University.
  8. Cremer, H. & Marchand, M. & Pestieau, P., 1990. "Evading, auditing and taxing : The equity-compliance tradeoff," Journal of Public Economics, Elsevier, vol. 43(1), pages 67-92, October.
  9. Frank A. Cowell, 1990. "Cheating the Government: The Economics of Evasion," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262532484, December.
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Citations

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Cited by:
  1. Roberto José Arias, 2004. "Reglas de selección para la fiscalización de Impuestos a las Ventas," Revista de Economía y Estadística, Universidad Nacional de Córdoba, Facultad de Ciencias Económicas, Instituto de Economía y Finanzas, vol. 0(2), pages 29-62, July.
  2. Inés Macho-Stadler & David Pérez-Castrillo, 2004. "Optimal Enforcement Policy and Firms' Emissions and Compliance with Environmental Taxes," UFAE and IAE Working Papers 612.04, Unitat de Fonaments de l'Anàlisi Econòmica (UAB) and Institut d'Anàlisi Econòmica (CSIC).
  3. Inés Macho Stadler & David Perez-Castrillo, 2005. "Optimal inspection policy and income-tax compliance," Hacienda Pública Española, IEF, vol. 173(2), pages 9-45, June.
  4. Jörg Schiller, 2003. "The Impact of Insurance Fraud Detection Systems," Microeconomics 0310001, EconWPA.
  5. Philipp Meyer-Brauns, 2014. "Optimal Auditing with Heterogeneous Audit Perceptions," Working Papers tax-mpg-rps-2014-06, Max Planck Institute for Tax Law and Public Finance.
  6. Schiller, Jörg, 2002. "The impact of insurance fraud detection systems," Working Papers on Risk and Insurance 8, University of Hamburg, Institute for Risk and Insurance.
  7. Eduardo Zilberman, 2011. "Audits or Distortions: The Optimal Scheme to Enforce Self-Employment Income Taxes," Textos para discussão 590, Department of Economics PUC-Rio (Brazil).

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