Optimal Auditing with Heterogeneous Audit Perceptions

Philipp Meyer-Brauns

Working Papers from Max Planck Institute for Tax Law and Public Finance

Abstract: This paper derives a government's optimal tax audit policy when taxpayers hold different beliefs about the likelihood of a tax audit. When audits are inexpensive, differences in perceived audit risk lead to stricter optimal auditing in equilibrium. If audits are relatively costly, heterogeneity in audit perceptions lowers the equilibrium audit intensity. Except when beliefs are near-identical throughout the population, both tax evasion and honest reporting occur in equilibrium. A welfare analysis shows a non-monotonic, U-shaped relationship between perception heterogeneity and social welfare. High levels of social welfare are associated with very homogeneous or very heterogeneous populations. Moderately heterogeneous taxpayer populations are associated with lower levels of social welfare.

Keywords: optimal auditing; heterogeneity; tax evasion (search for similar items in EconPapers)
JEL-codes: D82 H26 (search for similar items in EconPapers)
Pages: 33 pages
Date: 2014-06
New Economics Papers: this item is included in nep-acc, nep-iue and nep-mic
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://www.tax.mpg.de/RePEc/mpi/wpaper/TAX-MPG-RPS-2014-06.pdf Full text (original version) (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:mpi:wpaper:tax-mpg-rps-2014-06

Access Statistics for this paper

More papers in Working Papers from Max Planck Institute for Tax Law and Public Finance Contact information at EDIRC.
Bibliographic data for series maintained by Hans Mueller ().