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The shadow price of a tax inspector

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Author Info

  • Yitzhaki, Shlomo
  • Vakneen, Yitzhak

Abstract

Theeffects of tax evasion on tax rates and government revenues have focused fresh attention on the question of tax administration. Because of the difficulties of measuring the consequences of good or bad administration, policymakers cannot rely on a wide range of specific information on this subject. This paper presents a model which shows the process of auditing tax returns as a decision tree. Using this model, governments can verify that the additional power is not abused and that the administration is efficient. The main idea is to introduce economic considerations into the process of selecting and inspecting tax returns. By calculating the investment in the inspector's time at each stage (the taxpayer is likely to appeal), and the increase in revenue that would result, it is possible to calculate the minimum amount of tax evasion that justifies continuing the audit - the shadow price of the tax inspector. If the guidelines are followed the productivity of the inspectors will increase as well.

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Bibliographic Info

Paper provided by The World Bank in its series Policy Research Working Paper Series with number 76.

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Date of creation: 30 Sep 1988
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Handle: RePEc:wbk:wbrwps:76

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Related research

Keywords: Public Sector Economics&Finance; National Governance; Environmental Economics&Policies; Taxation&Subsidies; Banks&Banking Reform;

References

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  1. Joel Slemrod, 1988. "Are Estimated Tax Elasticities Really Just Tax Evasion Elasticities? The Case of Charitable Contributions," NBER Working Papers 2733, National Bureau of Economic Research, Inc.
  2. Dan Usher, 1986. "Tax Evasion and the Marginal Cost of Public Funds," Working Papers, Queen's University, Department of Economics 637, Queen's University, Department of Economics.
  3. Richard Goode, 1981. "Some Economic Aspects of Tax Administration (Quelques aspects économiques de l'administration fiscale) (Algunos aspectos económicos de la administración de impuestos)," IMF Staff Papers, Palgrave Macmillan, vol. 28(2), pages 249-274, June.
  4. Allingham, Michael G. & Sandmo, Agnar, 1972. "Income tax evasion: a theoretical analysis," Journal of Public Economics, Elsevier, Elsevier, vol. 1(3-4), pages 323-338, November.
  5. Greenberg, Joseph, 1984. "Avoiding tax avoidance: A (repeated) game-theoretic approach," Journal of Economic Theory, Elsevier, Elsevier, vol. 32(1), pages 1-13, February.
  6. Yitzhaki, Shlomo, 1979. "A Note on Optimal Taxation and Administrative Costs," American Economic Review, American Economic Association, American Economic Association, vol. 69(3), pages 475-80, June.
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Cited by:
  1. Ahlberg, Joakim, 2006. "Optimal Taxation of Intermediate Goods in the Presence of Externalities: A Survey Towards the Transport Sector," Working Papers 2006:3, Swedish National Road & Transport Research Institute (VTI).

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