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Auditing ghosts by prosperity signals

Author

Listed:
  • Gideon Yaniv

    (College of Management & National Insurance Institute, Israel)

Abstract

Ghosts are economic agents who evade taxes by failing to file a return. Knowing nothing about them, the tax agency is unable to track them down through audit strategies which are based on reported income. The present paper develops a simple model of the audit decision for a ghost-busting tax agency which bases its audit strategy on signals of prosperous living, such as ownership of high-quality housing. Ghosts have a preference for high-quality housing, but may opt to own houses of a lower quality so as to escape detection. The paper compares the optimal audit rules and net tax collection under signal and blind auditing of the non-declaring population, deriving conditions under which each strategy will dominate the other.

Suggested Citation

  • Gideon Yaniv, 2003. "Auditing ghosts by prosperity signals," Economics Bulletin, AccessEcon, vol. 8(9), pages 1-10.
    • Handle: RePEc:ebl:ecbull:eb-03h20002
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    File URL: http://www.accessecon.com/pubs/EB/2003/Volume8/EB-03H20002A.pdf
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    Cited by:

    1. Gideon Yaniv, 2010. "The Red–Green Channel Dilemma: Customs Declaration and Optimal Inspection Policy," Review of International Economics, Wiley Blackwell, vol. 18(3), pages 482-492, August.
    2. 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. 42(2), pages 29-62, Diciembre.
    3. Amitrajeet A. Batabyal & Hamid Beladi, 2010. "A Theoretical Analysis of Income Tax Evasion, Optimal Auditing, and Credibility in Developing Countries," Journal of Theoretical Politics, , vol. 22(1), pages 123-133, January.
    4. Dimitri Romanov, 2003. "Costs and Benefits of Marginal Reallocation of Tax Agency Resources in Pursuit of the Hard-to-Tax," International Center for Public Policy Working Paper Series, at AYSPS, GSU paper0323, International Center for Public Policy, Andrew Young School of Policy Studies, Georgia State University.

    More about this item

    JEL classification:

    • H2 - Public Economics - - Taxation, Subsidies, and Revenue

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