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Misreporting, Retroactive Audit and Redistribution

  • Sandrine Spaeter
  • Marc Willinger

In this paper, we investigate an audit policy that allows a regulator to control past declarations of an agent who is caught to fraud in the current period or to adopt an action that is not desirable for Society. Coupled with redistribution effects due to the production of a public good, we show that retroactivity has not always the desired effect on the level of evasion or the level of effort, once the agent has decided to deviate from a given objective. Nevertheless, we derive conditions under which retroactivity lessens fraudulent behaviors, in quantity and in value. As a related result, authorities should communicate about how they use the individual contributions but information should not be completely transparent in order to fight efficiently against deviation. Redistribution and retroactivity may have opposite effects on the behavior of the agent when combined together.

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File URL: http://www.lameta.univ-montp1.fr/Documents/DR2006-12.pdf
File Function: First version, 2006
Download Restriction: no

Paper provided by LAMETA, Universtiy of Montpellier in its series Working Papers with number 06-12.

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Length: 32 pages
Date of creation: Nov 2006
Date of revision: Nov 2006
Handle: RePEc:lam:wpaper:06-12
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Web page: http://www.lameta.univ-montp1.fr/

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  1. Leo K. Simon & Sophie Thoyer & Sylvie Morardet & Rachael E. Goodhue & Patrick Rio & Gordon C. Rausser, 2006. "Structure and bargaining power in multilateral negotiations : Application to water management policies in France," Working Papers 06-09, LAMETA, Universtiy of Montpellier, revised Oct 2006.
  2. Mookherjee, Dilip & Png, I P L, 1992. "Monitoring vis-a-vis Investigation in Enforcement of Law," American Economic Review, American Economic Association, vol. 82(3), pages 556-65, June.
  3. Alm, James & Jackson, Betty & McKee, Michael J., 1992. "Estimating the Determinants of Taxpayer Compliance with Experimental Data," National Tax Journal, National Tax Association, vol. 45(1), pages 107-14, March.
  4. Jung, Young H. & Snow, Arthur & Trandel, Gregory A., 1994. "Tax evasion and the size of the underground economy," Journal of Public Economics, Elsevier, vol. 54(3), pages 391-402, July.
  5. Greenberg, Joseph, 1984. "Avoiding tax avoidance: A (repeated) game-theoretic approach," Journal of Economic Theory, Elsevier, vol. 32(1), pages 1-13, February.
  6. Rickard, J A & Russell, A M & Howroyd, T D, 1982. "A Tax Evasion Model with Allowance for Retroactive Penalties," The Economic Record, The Economic Society of Australia, vol. 58(163), pages 379-85, December.
  7. Picard, Pierre, 1996. "Auditing claims in the insurance market with fraud: The credibility issue," Journal of Public Economics, Elsevier, vol. 63(1), pages 27-56, December.
  8. Mookherjee, Dilip & Png, I P L, 1990. "Enforcement Costs and the Optimal Progressivity of Income Taxes," Journal of Law, Economics and Organization, Oxford University Press, vol. 6(2), pages 410-31, Fall.
  9. Harrington, Winston, 1988. "Enforcement leverage when penalties are restricted," Journal of Public Economics, Elsevier, vol. 37(1), pages 29-53, October.
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