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Inspectors or Google Earth? Optimal fiscal policies under uncertain detection of evaders

Author

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  • Martin Besfamille

    ()

  • Pablo Olmos

Abstract

Most of the contributions to the optimal tax-enforcement literature assume that audits are perfect and always discover evaders. However, evasion often remains undetected. To reduce the probability of such a failure, governments invest resources to improve their tax administrations’ detection technology. We incorporate these kind of investments into a model that studies optimal fiscal policies under uncertain detection of evaders. We characterize their level and we show numerically how they interact with the other dimensions of an optimal fiscal policy. Finally, we highlight the differences between our results and those obtained in a model without investment in audit technology.

Suggested Citation

  • Martin Besfamille & Pablo Olmos, 2010. "Inspectors or Google Earth? Optimal fiscal policies under uncertain detection of evaders," Department of Economics Working Papers 2010-09, Universidad Torcuato Di Tella.
  • Handle: RePEc:udt:wpecon:2010-09
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    Keywords

    Tax evasion - Tax rates - Enforcement - Imperfect audits - Investments in tax administration;

    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • H26 - Public Economics - - Taxation, Subsidies, and Revenue - - - Tax Evasion and Avoidance
    • H83 - Public Economics - - Miscellaneous Issues - - - Public Administration

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