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Type: Journal article
Title: Finding out who the crooks are - tax evasion with sequential auditing
Author: Bayer, R.C.
Citation: Singapore Economic Review, 2006; 51(2):195-228
Publisher: World Scientific Publishing Co. Pte.Ltd.
Issue Date: 2006
ISSN: 0217-5908
Statement of
Ralph-C. Bayer
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
Rights: © World Scientific Publishing Company
RMID: 0020063350
DOI: 10.1142/S0217590806002305
Appears in Collections:Economics publications

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