IDEAS home Printed from https://ideas.repec.org/p/wbk/wbrwps/76.html

The shadow price of a tax inspector

Author

Listed:
  • Yitzhaki, Shlomo
  • Vakneen, Yitzhak

Abstract

Theeffects of tax evasion on tax rates and government revenues have focused fresh attention on the question of tax administration. Because of the difficulties of measuring the consequences of good or bad administration, policymakers cannot rely on a wide range of specific information on this subject. This paper presents a model which shows the process of auditing tax returns as a decision tree. Using this model, governments can verify that the additional power is not abused and that the administration is efficient. The main idea is to introduce economic considerations into the process of selecting and inspecting tax returns. By calculating the investment in the inspector's time at each stage (the taxpayer is likely to appeal), and the increase in revenue that would result, it is possible to calculate the minimum amount of tax evasion that justifies continuing the audit - the shadow price of the tax inspector. If the guidelines are followed the productivity of the inspectors will increase as well.

Suggested Citation

  • Yitzhaki, Shlomo & Vakneen, Yitzhak, 1988. "The shadow price of a tax inspector," Policy Research Working Paper Series 76, The World Bank.
    • Handle: RePEc:wbk:wbrwps:76
    as

    Download full text from publisher

    File URL: http://www-wds.worldbank.org/external/default/WDSContentServer/WDSP/IB/1988/09/01/000009265_3960927054605/Rendered/PDF/multi_page.pdf
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Slemrod, Joel, 1989. "Are Estimated Tax Elasticities Really Just Tax Evasion Elasticities? The Case of Charitable Contributions," The Review of Economics and Statistics, MIT Press, vol. 71(3), pages 517-522, August.
    2. Yitzhaki, Shlomo, 1979. "A Note on Optimal Taxation and Administrative Costs," American Economic Review, American Economic Association, vol. 69(3), pages 475-480, June.
    3. Usher, Dan, 1986. "Tax Evasion and the Marginal Cost of Public Funds," Economic Inquiry, Western Economic Association International, vol. 24(4), pages 563-586, October.
    4. Greenberg, Joseph, 1984. "Avoiding tax avoidance: A (repeated) game-theoretic approach," Journal of Economic Theory, Elsevier, vol. 32(1), pages 1-13, February.
    5. 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.
    6. Richard Goode, 1981. "Some Economic Aspects of Tax Administration (Quelques aspects économiques de l'administration fiscale) (Algunos aspectos económicos de la administración de impuestos)," IMF Staff Papers, Palgrave Macmillan, vol. 28(2), pages 249-274, June.
    7. C. Eugene Steuerle, 1986. "Who Should Pay For Collecting Taxes," Books, American Enterprise Institute, number 650820, September.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Slemrod, Joel & Yitzhaki, Shlomo, 2002. "Tax avoidance, evasion, and administration," Handbook of Public Economics, in: A. J. Auerbach & M. Feldstein (ed.), Handbook of Public Economics, edition 1, volume 3, chapter 22, pages 1423-1470, Elsevier.
    2. Ahlberg, Joakim, 2006. "Optimal Taxation of Intermediate Goods in the Presence of Externalities: A Survey Towards the Transport Sector," Working Papers 2006:3, Swedish National Road & Transport Research Institute (VTI).
    3. Martin Besfamille & Cecilia Parlatore Siritto, 2009. "Modernization of Tax Administrations and Optimal Fiscal Policies," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 11(6), pages 897-926, December.
    4. Nipon Poapongsakorn & Kovit Charnvitayapong & Duangmanee Laovakul & Somchai Suksiriserekul & Bev Dahlby, 2000. "A Cost-Benefit Analysis of the Thailand Taxpayer Survey," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 7(1), pages 63-82, February.
    5. 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.
    6. José Durán-Cabré & Alejandro Esteller-Moré & Luca Salvadori, 2015. "Empirical evidence on horizontal competition in tax enforcement," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 22(5), pages 834-860, October.
    7. Dimitri Romanov, 2003. "Costs and Benefits of Marginal Reallocation of Tax Agency Resources in Pursuit of the Hard-to-Tax," International Center for Public Policy Working Paper Series, at AYSPS, GSU paper0323, International Center for Public Policy, Andrew Young School of Policy Studies, Georgia State University.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Slemrod, Joel, 1990. "Optimal Taxation and Optimal Tax Systems," Journal of Economic Perspectives, American Economic Association, vol. 4(1), pages 157-178, Winter.
    2. Slemrod, Joel & Yitzhaki, Shlomo, 2002. "Tax avoidance, evasion, and administration," Handbook of Public Economics, in: A. J. Auerbach & M. Feldstein (ed.), Handbook of Public Economics, edition 1, volume 3, chapter 22, pages 1423-1470, Elsevier.
    3. Donald Bruce & William Fox & Matthew Murray, 2003. "To Tax Or Not To Tax? The Case Of Electronic Commerce," Contemporary Economic Policy, Western Economic Association International, vol. 21(1), pages 25-40, January.
    4. Kalina Koleva, 2005. "Seeking for an optimal tax administration: the efficiency costs’ approach [A la recherche de l'administration fiscale optimale : l'approche par les coûts d'efficience]," Post-Print halshs-00195354, HAL.
    5. Kaplow, Louis, 1990. "Optimal taxation with costly enforcement and evasion," Journal of Public Economics, Elsevier, vol. 43(2), pages 221-236, November.
    6. Kalina Koleva, 2005. "A la recherche de l'administration fiscale optimale : l'approche par les coûts d'efficience," Cahiers de la Maison des Sciences Economiques r05050, Université Panthéon-Sorbonne (Paris 1).
    7. Marisa Ratto & Richard Thomas & David Ulph, 2013. "The Indirect Effects of Auditing Taxpayers," Public Finance Review, , vol. 41(3), pages 317-333, May.
    8. Firouz Gahvari & Luca Micheletto, 2020. "Wage endogeneity, tax evasion, and optimal nonlinear income taxation," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 22(3), pages 501-531, June.
    9. Maarten Lindeboom & Bas van der Klaauw & Sandra Vriend, 2014. "Audit Rates and Compliance: A Field Experiment in Long-term Care," Tinbergen Institute Discussion Papers 14-038/V, Tinbergen Institute.
    10. Martin Besfamille & Cecilia Parlatore Siritto, 2009. "Modernization of Tax Administrations and Optimal Fiscal Policies," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 11(6), pages 897-926, December.
    11. Mohamed Ali Bchir & Nicolas Daures & Marc Willinger, 2008. "Tolérance de la fraude et évasion fiscale : une analyse expérimentale du modèle de Greenberg," Economie & Prévision, La Documentation Française, vol. 0(1), pages 33-46.
    12. Cécile Bazart, 2002. "Les comportements de fraude fiscale. Le face à face contribuables — administration fiscale," Revue Française d'Économie, Programme National Persée, vol. 16(4), pages 171-212.
    13. Alm, James & Shimshack, Jay, 2014. "Environmental Enforcement and Compliance: Lessons from Pollution, Safety, and Tax Settings," Foundations and Trends(R) in Microeconomics, now publishers, vol. 10(4), pages 209-274, December.
    14. Reinganum, Jennifer F. & Wilde, Louis L., 1985. "Income tax compliance in a principal-agent framework," Journal of Public Economics, Elsevier, vol. 26(1), pages 1-18, February.
    15. Leandro Arozamena & Martin Besfamille & Pablo Sanguinetti, 2010. "Optimal taxes and penalties when the government cannot commit to its audit policy," Department of Economics Working Papers 2010-10, Universidad Torcuato Di Tella.
    16. Errol D'souza, 2016. "A Theory of Tax Evasion in Developing Countries," Working Papers id:11040, eSocialSciences.
    17. Davidson, Carl & Martin, Lawrence & Wilson, John Douglas, 2007. "Efficient black markets?," Journal of Public Economics, Elsevier, vol. 91(7-8), pages 1575-1590, August.
    18. Christian Gillitzer & Peer Ebbesen Skov, 2013. "Evidence on Unclaimed Charitable Contributions from the Introduction of Third-Party Information Reporting in Denmark," EPRU Working Paper Series 2013-04, Economic Policy Research Unit (EPRU), University of Copenhagen. Department of Economics.
    19. Lindeboom, Maarten & van der Klaauw, Bas & Vriend, Sandra, 2020. "Audit regimes in long-term care," Journal of Economic Behavior & Organization, Elsevier, vol. 176(C), pages 272-298.
    20. Fortin, Bernard & Marceau, Nicolas & Savard, Luc, 1997. "Taxation, wage controls and the informal sector," Journal of Public Economics, Elsevier, vol. 66(2), pages 293-312, November.

    More about this item

    Keywords

    ;
    ;
    ;
    ;
    ;

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:wbk:wbrwps:76. See general information about how to correct material in RePEc.

    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 CitEc recognized a bibliographic reference but did not link an item in RePEc 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 RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Roula I. Yazigi (email available below). General contact details of provider: https://edirc.repec.org/data/dvewbus.html .

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

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.