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Anti-evasion auditing policy in the presence of common income shocks

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When fairly homogeneous taxpayers are affected by common income shocks, a tax agency’s optimal auditing strategy consists of auditing a low-income declarer with a probability that (weakly) increases with the other taxpayers’ declarations. Such policy generates a coordination game among taxpayers, who then face both strategic uncertainty - about the equilibrium that will be selected.and fundamental uncertainty - about the type of agency they face. Thus the situation can be realistically modelled as a global game that yields a unique and usually interior equilibrium which is consistent with empirical evidence. Results are also applicable to other areas like regulation or welfare benefit allocation.

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en

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application/pdf

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http://eprints.lse.ac.uk/6543/1/Anti-evasion_auditing_policy_in_the_presence_of_common_income_shocks.pdf

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