Finding out who the crooks are - Tax evasion with sequential auditing
AbstractThis paper investigates multi-item moral hazard with auditing contests. Although the presented model is widely applicable, we choose tax evasion as an exemplary application. We introduce a tax-evasion model where tax authority and taxpayer invest in detection and concealment. The taxpayers have multiple potential income sources and are heterogeneous with respect to their evasion scruples. The tax authority - unable to commit to an audit strategy - observes a tax declaration and chooses its auditing efforts. We show that a tax inspector prefers to audit source by source until he finds evidence for evasion to conduct a full-scale audit thereafter.
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Bibliographic InfoPaper provided by EconWPA in its series Public Economics with number 0412009.
Date of creation: 14 Dec 2004
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Moral Hazard; Auditing Rules; Contest; Tax Evasion;
Other versions of this item:
- Ralph-C. Bayer, 2006. "Finding Out Who The Crooks Are — Tax Evasion With Sequential Auditing," The Singapore Economic Review (SER), World Scientific Publishing Co. Pte. Ltd., vol. 51(02), pages 195-227.
- Ralph-C Bayer, 2003. "Finding out Who the Crooks Are Â– Tax Evasion with Sequential Auditing," School of Economics Working Papers 2003-07, University of Adelaide, School of Economics.
- Ralph-C Bayer, 2004. "Finding Out Who the Crooks Are - Tax Evasion with Sequential Auditing," School of Economics Working Papers 2004-10, University of Adelaide, School of Economics.
- H26 - Public Economics - - Taxation, Subsidies, and Revenue - - - Tax Evasion
- D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
- K42 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior - - - Illegal Behavior and the Enforcement of Law
This paper has been announced in the following NEP Reports:
- NEP-ACC-2004-12-20 (Accounting & Auditing)
- NEP-ALL-2004-12-20 (All new papers)
- NEP-PBE-2004-12-20 (Public Economics)
- NEP-PUB-2004-12-20 (Public Finance)
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