Randomness in tax enforcement
For most parameter values, increased randomness about how much taxable income an auditor would assess leads to higher reported income and more revenue, When reducing randomness is costly, optimality requires some randomness in assessed taxable Income. Even if reducing randomness g costless, taxpayers may prefer some randomness when the increased revenue can be rebated, so that the government a revenue stays fixed. These results do not rely on the presence of a distortion in labor supply.
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- Joel Slemrod & Shlomo Yitzhaki, 1985.
"The Optimal Size of a Tax Collection Agency,"
NBER Working Papers
1759, National Bureau of Economic Research, Inc.
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