IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Login to save this paper or follow this series

Tax evasion, informants, and optimal auditing policy

We analyze the interaction between the tax authority, tax payers, and potential informants in a game theoretic framework. The tax authority gives monetary incentives to informants, and conducts random tax audits. The probability of a tax payer being audited depends on whether the tax authority received a tip about him from an informant or not. In subgame perfect equilibrium tax payers are divided into (at most) two groups. Those with income up to a certain level evade a small amount of taxes to assure that potential informants do not have sufficient incentives to report, and those with high incomes choose to declare zero income knowing that they will be reported by informants. The tax authority chooses the probabilities of the two types of audits, under a budget constraint. In many cases the probabilities are chosen in a way that no informant actually reported, and in some cases the tax authority does not conduct any audits.

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: http://www.nirdagan.com/research/200501/taxevasion.html
Download Restriction: no

File URL: http://www.nirdagan.com/research/200501/taxevasion.pdf
Download Restriction: no

Paper provided by Nir Dagan in its series Economic theory and game theory with number 021.

as
in new window

Length: 14 pages
Date of creation: 30 Nov 2005
Date of revision:
Handle: RePEc:nid:ndagan:021
Contact details of provider: Postal: Nir Dagan, Dept. of Economics and Management, Tel-Hai Academic College, Upper Galilee, Israel.
Web page: http://www.nirdagan.com/research/

References listed on IDEAS
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.:

as in new window
  1. Marjit, Sugata & Mukherjee, Vivekananda & Mukherjee, Arijit, 2003. "Harassment, corruption and tax policy: reply," European Journal of Political Economy, Elsevier, vol. 19(4), pages 899-900, November.
  2. Reinganum, Jennifer F & Wilde, Louis L, 1986. "Equilibrium Verification and Reporting Policies in a Model of Tax Compliance," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 27(3), pages 739-60, October.
  3. Graetz, Michael J & Reinganum, Jennifer F & Wilde, Louis L, 1986. "The Tax Compliance Game: Toward an Interactive Theory of Law Enforcement," Journal of Law, Economics and Organization, Oxford University Press, vol. 2(1), pages 1-32, Spring.
  4. Hindriks, J. & Keen, M. & Muthoo, A., 1998. "Corruption, Extortion and Evasion," Discussion Papers 9809, Exeter University, Department of Economics.
  5. Sanchez, Isabel & Sobel, Joel, 1993. "Hierarchical design and enforcement of income tax policies," Journal of Public Economics, Elsevier, vol. 50(3), pages 345-369, March.
  6. David M Kreps & Robert Wilson, 2003. "Sequential Equilibria," Levine's Working Paper Archive 618897000000000813, David K. Levine.
  7. Marjit, Sugata & Mukherjee, Vivekananda & Mukherjee, Arijit, 2000. "Harassment, corruption and tax policy," European Journal of Political Economy, Elsevier, vol. 16(1), pages 75-94, March.
  8. Jon Elster, 1998. "Emotions and Economic Theory," Journal of Economic Literature, American Economic Association, vol. 36(1), pages 47-74, March.
  9. Greenberg, Joseph, 1984. "Avoiding tax avoidance: A (repeated) game-theoretic approach," Journal of Economic Theory, Elsevier, vol. 32(1), pages 1-13, February.
  10. Yaniv, Gideon, 2001. " Revenge, Tax Informing, and the Optimal Bounty," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 3(2), pages 225-33.
  11. Brian Erard & Jonathan S. Feinstein, 1994. "Honesty and Evasion in the Tax Compliance Game," RAND Journal of Economics, The RAND Corporation, vol. 25(1), pages 1-19, Spring.
  12. Landsberger, Michael & Meilijson, Isaac, 1982. "Incentive generating state dependent penalty system : The case of income tax evasion," Journal of Public Economics, Elsevier, vol. 19(3), pages 333-352, December.
  13. Frank A. Cowell, 1990. "Cheating the Government: The Economics of Evasion," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262532484, June.
  14. Mookherjee, Dilip & Png, Ivan, 1989. "Optimal Auditing, Insurance, and Redistribution," The Quarterly Journal of Economics, MIT Press, vol. 104(2), pages 399-415, May.
  15. Allingham, Michael G. & Sandmo, Agnar, 1972. "Income tax evasion: a theoretical analysis," Journal of Public Economics, Elsevier, vol. 1(3-4), pages 323-338, November.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:nid:ndagan:021. 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: (Nir Dagan)

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.