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Anti-evasion auditing policy in thepresence of common income shocks

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  • Miguel Sanchez

Abstract

When fairly homogeneous taxpayers are affected by common incomeshocks, a tax agency's optimal auditing strategy consists of auditing alow-income declarer with a probability that (weakly) increases with theother taxpayers' declarations. Such policy generates a coordination gameamong taxpayers, who then face both strategic uncertainty - about theequilibrium that will be selected.and fundamental uncertainty - about thetype of agency they face. Thus the situation can be realistically modelledas a global game that yields a unique and usually interior equilibriumwhich is consistent with empirical evidence.Results are also applicable to other areas like regulation or welfarebenefit allocation.

Suggested Citation

  • Miguel Sanchez, 2006. "Anti-evasion auditing policy in thepresence of common income shocks," STICERD - Distributional Analysis Research Programme Papers 80, Suntory and Toyota International Centres for Economics and Related Disciplines, LSE.
  • Handle: RePEc:cep:stidar:80
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    File URL: http://sticerd.lse.ac.uk/dps/darp/DARP80.pdf
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    More about this item

    Keywords

    Keywords: Tax Evasion; Coordination/Global Games; Expectations; Asymmetric Information;

    JEL classification:

    • H26 - Public Economics - - Taxation, Subsidies, and Revenue - - - Tax Evasion and Avoidance
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations
    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games

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