EconPapers    
Economics at your fingertips  
 

Income Tax Compliance: the No-Commitment Game

Jean Hindriks ()

Discussion Papers from University of Exeter, Department of Economics

Abstract: We consider a tax enforcement game in which the fiscal authority cannot pre-commit to an inspection policy and its interaction with the taxpayer is modelled as a signalling game. We extend earlier work by allowing for imperfect auditing, non-linear taxation and non-linear penalties. Using the incentive compatibility approach in signalling games (Mailath, 1987) and making explicit out-of-equilibrium beliefs, we demonstrate that the separating equilibrium is the only equilibrium of this game. As for characterisation, we show that the game has a simple solution which displays a constant level of non-compliance, constant audit rates and a progressive bias in the sense that the distribution of true liabilities Lorenz-dominates the distribution of effective tax payments. We also study the impact on the equilibrium outcome of small changes in taxation, penalty, auditing quality and cost of audit. Lastly, we allow for the possibility that the taxpayer is intrinsically honest with some probability and show that a small change in this probability has significant effects on reporting behaviour, audit policy and expected revenue.

Keywords: TAXATION; INCOME; ASYMETRIC INFORMATION (search for similar items in EconPapers)
JEL-codes: H26 D82 (search for similar items in EconPapers)
Date: 1999
References: Add references at CitEc
Citations View citations in EconPapers (3) Track citations by RSS feed

There are no downloads for this item, see the EconPapers FAQ for hints about obtaining it.

Related works:
Working Paper: Income Tax Compliance: The No-Commitment Game (1994)
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:exe:wpaper:9919

Access Statistics for this paper

More papers in Discussion Papers from University of Exeter, Department of Economics Contact information at EDIRC.
Bibliographic data for series maintained by Jingnan (Cecilia) Chen ().

 
Page updated 2018-08-26
Handle: RePEc:exe:wpaper:9919