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Tax Riots

  • Christopher Phelan
  • Marco Bassetto

    ()

    (Department of Economics University of Minnesota)

This paper considers the existence of bad equilibria in a random auditing tax model with limits on the number of households which can be audited. Specifically, we present sufficient conditions for a tax-audit mechanism which has truth telling as one equilibrium to have other equilibiria in which households conceal income. Further, we present conditions such that the optimal tax-audit mechanism delivered by a standard mechanism design approach displays these characteristics. Our main idea is that in a realistic model of taxation and auditing, incentives which are sufficient to induce truth-telling when households expect other households to tell the truth are generally insufficient to induce truth telling when households expect other households to cheat

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File URL: http://www.econ.umn.edu/~bassetto/research/riots/taxriots.pdf
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Paper provided by Society for Economic Dynamics in its series 2005 Meeting Papers with number 433.

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Date of creation: 2005
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Handle: RePEc:red:sed005:433
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Society for Economic Dynamics Marina Azzimonti Department of Economics Stonybrook University 10 Nicolls Road Stonybrook NY 11790 USA

Web page: http://www.EconomicDynamics.org/
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  1. David K. Levine & Wolfgang Pesendorfer, 1995. "When Are Agents Negligible?," Levine's Working Paper Archive 96, David K. Levine.
  2. Krasa, Stefan & Villamil, Anne P, 1994. "Optimal Multilateral Contracts," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 4(2), pages 167-87, March.
  3. Pesendorfer, Wolfgang & Levine, David & Fudenberg, Drew, 1998. "When Are Nonanonymous Players Negligible?," Scholarly Articles 3203775, Harvard University Department of Economics.
  4. Jackson, Matthew O, 1991. "Bayesian Implementation," Econometrica, Econometric Society, vol. 59(2), pages 461-77, March.
  5. Ennis, Huberto M. & Keister, Todd, 2005. "Government policy and the probability of coordination failures," European Economic Review, Elsevier, vol. 49(4), pages 939-973, May.
  6. J. A. Mirrlees, 1971. "An Exploration in the Theory of Optimum Income Taxation," Review of Economic Studies, Oxford University Press, vol. 38(2), pages 175-208.
  7. Mikhail Golosov & Narayana R. Kocherlakota & Aleh Tsyvinski, 2001. "Optimal indirect and capital taxation," Working Papers 615, Federal Reserve Bank of Minneapolis.
  8. Mikhail Golosov & Aleh Tsyvinski, 2005. "Designing Optimal Disability Insurance: A Case for Asset Testing," Levine's Bibliography 784828000000000450, UCLA Department of Economics.
  9. Stefania Albanesi & Christopher Sleet, 2006. "Dynamic Optimal Taxation with Private Information," Review of Economic Studies, Oxford University Press, vol. 73(1), pages 1-30.
  10. Ennis, Huberto M. & Keister, Todd, 2005. "Optimal fiscal policy under multiple equilibria," Journal of Monetary Economics, Elsevier, vol. 52(8), pages 1359-1377, November.
  11. Moffitt, Robert, 1985. "Unemployment insurance and the distribution of unemployment spells," Journal of Econometrics, Elsevier, vol. 28(1), pages 85-101, April.
  12. Matthew O. Jackson, 2001. "A crash course in implementation theory," Social Choice and Welfare, Springer;The Society for Social Choice and Welfare, vol. 18(4), pages 655-708.
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