Decentralized Deterrence, with an Application to Labor Tax Auditing
Deterrence of illegal activities is frequently carried out by many atomistic auditors (tax auditors, law enforcement agents, etc.). Not much is known either normatively about the best way to incentivize atomistic auditors, nor positively about what these incentives actually look like in real world organizations. This paper focuses almost exclusively on the positive question. It proposes a game-theoretic model of decentralized deterrence and an empirical test, based on the equilibrium of the model, to identify the incentives of individual auditors. In the special (but important) case of tax enforcement, the paper fully characterizes the equilibrium of a strategic auditing game and provides a method to calibrate its parameters based on audit data. Applying the model and method to Italian auditing data provides ‘proof of concept’: the methods are practical and tractable. We are able to provide an estimate of tax evasion based on (non-random) audit data alone. Counterfactual simulation of the model quantifies the costs and benefits of alternative auditing policies. We compare decentralized enforcement with a counterfactual commitment policy, and compute the loss from the former. Thus we are able to quantify the costs of decentralizing enforcement.
|Date of creation:||Mar 2012|
|Date of revision:|
|Contact details of provider:|| Postal: |
Phone: 44 - 20 - 7183 8801
Fax: 44 - 20 - 7183 8820
|Order Information:|| Email: |
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Chander, Parkash & Wilde, Louis L, 1998. "A General Characterization of Optimal Income Tax Enforcement," Review of Economic Studies, Wiley Blackwell, vol. 65(1), pages 165-83, January.
- Shamena Anwar & Hanming Fang, 2004.
"An Alternative Test of Racial Prejudice in Motor Vehicle Searches: Theory and Evidence,"
Cowles Foundation Discussion Papers
1464, Cowles Foundation for Research in Economics, Yale University.
- Shamena Anwar & Hanming Fang, 2006. "An Alternative Test of Racial Prejudice in Motor Vehicle Searches: Theory and Evidence," American Economic Review, American Economic Association, vol. 96(1), pages 127-151, March.
- Shamena Anwar & Hanming Fang, 2005. "An Alternative Test of Racial Prejudice in Motor Vehicle Searches: Theory and Evidence," NBER Working Papers 11264, National Bureau of Economic Research, Inc.
- Gary S. Becker, 1974.
"Crime and Punishment: An Economic Approach,"
in: Essays in the Economics of Crime and Punishment, pages 1-54
National Bureau of Economic Research, Inc.
- Parkash Chander, 1998. "A Stronger Measure of Risk Aversion and a General Characterization of Optimal Income Tax Enforcement," Economics Working Paper Archive 399, The Johns Hopkins University,Department of Economics.
- Brian Erard & Jonathan Feinstein, 1993.
"Honesty and Evasion in the Tax Compliance Game,"
Carleton Economic Papers
93-06, Carleton University, Department of Economics, revised 1994.
This item is featured on the following reading lists or Wikipedia pages:
When requesting a correction, please mention this item's handle: RePEc:cpr:ceprdp:8901. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ()The email address of this maintainer does not seem to be valid anymore. Please ask to update the entry or send us the correct address
If references are entirely missing, you can add them using this form.