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Tax consultants' incentives: A game-theoretic investigation into the behavior of tax consultants, taxpayers, and the tax authority in a setting of tax complexity

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  • Grottke, Markus
  • Lorenz, Johannes

Abstract

We propose a game-theoretic investigation to capture the interplay between the behavior of tax consultants, taxpayers, and the tax authority in a setting of tax complexity. Our purpose is to provide answers to two research questions: Which aspects of the strategic interaction between the players induce tax consultants to provide inaccurate consulting services? How can we change the incentive structure in order to improve tax consulting quality? We find that tax consultants can be best motivated to work accurately by exogenously increasing the probability of tax underpayment and by ensuring that the tax authority corrects both tax underpayment and tax overpayment.

Suggested Citation

  • Grottke, Markus & Lorenz, Johannes, 2017. "Tax consultants' incentives: A game-theoretic investigation into the behavior of tax consultants, taxpayers, and the tax authority in a setting of tax complexity," Passauer Diskussionspapiere, Betriebswirtschaftliche Reihe B-30-17, University of Passau, Faculty of Business and Economics.
  • Handle: RePEc:zbw:upadbr:b3017
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    References listed on IDEAS

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    1. Lipatov, Vilen, 2012. "Corporate tax evasion: The case for specialists," Journal of Economic Behavior & Organization, Elsevier, vol. 81(1), pages 185-206.
    2. Reinganum, Jennifer F & Wilde, Louis L, 1991. "Equilibrium Enforcement and Compliance in the Presence of Tax Practitioners," Journal of Law, Economics, and Organization, Oxford University Press, vol. 7(1), pages 163-181, Spring.
    3. Kaplow, Louis, 1998. "Accuracy, Complexity, and the Income Tax," Journal of Law, Economics, and Organization, Oxford University Press, vol. 14(1), pages 61-83, April.
    4. 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.
    5. Damjanovic, Tatiana & Ulph, David, 2010. "Tax progressivity, income distribution and tax non-compliance," European Economic Review, Elsevier, vol. 54(4), pages 594-607, May.
    6. 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.
    7. Christian, Charles W. & Gupta, Sanjay & Lin, Suming, 1993. "Determinants of Tax Preparer Usage: Evidence from Panel Data," National Tax Journal, National Tax Association, vol. 46(4), pages 487-503, December.
    8. Christian, Charles W. & Gupta, Sanjay & Lin, Suming, 1993. "Determinants of Tax Preparer Usage: Evidence From Panel Data," National Tax Journal, National Tax Association;National Tax Journal, vol. 46(4), pages 487-503, December.
    9. Erard, Brian, 1993. "Taxation with representation : An analysis of the role of tax practitioners in tax compliance," Journal of Public Economics, Elsevier, vol. 52(2), pages 163-197, September.
    10. 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 739-760, October.
    11. Scotchmer, Suzanne, 1989. "Who profits from taxpayer confusion?," Economics Letters, Elsevier, vol. 29(1), pages 49-55.
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    More about this item

    Keywords

    tax consultant; tax law; game theory;

    JEL classification:

    • H2 - Public Economics - - Taxation, Subsidies, and Revenue
    • M48 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Government Policy and Regulation
    • P48 - Economic Systems - - Other Economic Systems - - - Political Economy; Legal Institutions; Property Rights; Natural Resources; Energy; Environment; Regional Studies
    • K34 - Law and Economics - - Other Substantive Areas of Law - - - Tax Law

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