FINDING OUT WHO THE CROOKS ARE — TAX EVASION WITH SEQUENTIAL AUDITING

Ralph-C Bayer ()

The Singapore Economic Review (SER), 2006, vol. 51, issue 02, 195-227

Abstract: This paper investigates multi-item moral hazard with auditing contests.s Although the presented model is widely applicable, we choose tax evasion as an exemplary application. We introduce a tax-evasion model where tax authority and taxpayer invest in detection and concealment. The taxpayers have multiple potential income sources and are heterogeneous with respect to their evasion scruples. The tax authority — unable to commit to an audit strategy — observes a tax declaration and chooses its auditing efforts. We show that the tax authority prefers to audit source by source until it finds evidence for evasion to conduct a full-scale audit thereafter. Furthermore, we provide an explanation for why economic actors engage in both the formal and informal sector at the same time.

Keywords: Moral hazard; auditing rules; contest; tax evasion (search for similar items in EconPapers)
Date: 2006
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Related works:
Working Paper: Finding Out Who the Crooks Are - Tax Evasion with Sequential Auditing (2004)
Working Paper: Finding out who the crooks are - Tax evasion with sequential auditing (2004)
Working Paper: Finding out Who the Crooks Are – Tax Evasion with Sequential Auditing (2003)
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Persistent link: https://EconPapers.repec.org/RePEc:wsi:serxxx:v:51:y:2006:i:02:n:s0217590806002305

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DOI: 10.1142/S0217590806002305

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